To Regulate or Not to Regulate?

I have heard it said that governmental regulation is neither appropriate or desirable. That the state has no right to butcher the freedoms of the market under any circumstances, presenting it to the world as some kind of sacred cow. (Perhaps bull would be a more appropriate anthropomorphicism?) On the other side of the coin, many on the left of the spectrum argue for more regulation, particularly within the financial markets. I don't consider myself to the left by any stretch, nevertheless in my opinion, regulation is a necessary evil since without it there could not exist a free market.

Allow me to explain; the free market cannot survive in isolation and whilst I don't believe that the state should be involved in setting prices or any long-term subsidy of business, as such policies only encourage inefficiency, regulation is necessary to maintain competition. If we may look to the fundamentals of the cornerstone of market economics, the Wealth of Nations, it becomes clear that Smith was not against governmental regulation. Quite the contrary.

Adam Smith argued that through the division of labour and specialisation, an industry could realise an enormous increase in productivity, and realise significant economic growth through an absolute advantage. However, the natural conclusion of an absolute advantage is a monopoly. Because a monopoly interferes with the ability of the invisible hand to find an equilibrium of prices, "the price of monopoly is upon every occasion the highest which can be got." Without the invisible hand, the free market could not exist and without government intervention, through anti-trust laws to prevent monopolies, the market would exist, but it would not be free.

Thus when we speak of government intervention in the markets, let us not speak of it as if it is some kind of taboo against nature, but judge each and every regulation on it's own merits as to whether it's purpose is justified.

Fishy Business

An article in the Economist regarding European fisheries legislation points out that "88% of the EU's stocks are overfished". Most of the fleets don't turn a profit, although some countries are more competitive than others, yet many receive state aid, some directly, but all in the form of tax-free fuel.

The article then goes on to explain that the solution lies in a common market of tradeable fishing rights. This does not chart the depths of the problem. Certainly a market of fisheries rights would open up the market to competetion and ensure that those ships which are the most efficient and well run succeed, through purchasing the fishing rights of those fleets which are less efficient. This would of course have the effect of ensuring European consumers get the best deal at the market.

Unfortunately the article then goes on to say that, "Trawlermen all over Europe chuck dead fish awat to free up holds for more profitable specimens." This is not actually correct. It is illegal in Norway to dump a catch. Thus a quota of fish, more accurately represents those fish that are actually caught, and then landed. The idea of a fishing quota in the first place, it to conserve fishing stocks, yet if you only count the fish when they are landed, this encourages fishermen to dump those fish which are not up to scratch and fish some more. Thus landing a better catch, and a higher paypacket for themeselves. That is of course human nature, but it does not provide a solution therefore, to the problems of overfishing.

The EU therefore could of course establish an open market of fishing rights, of course, this would make for a better deal for consumers and is something I am always in favour of. To ensure that we still have fishing stocks well into the future however it needs to be illegal to throw dead fish away. If this were the case the industry would be more self regulating, with boats using larger nets to ensure they do not catch small fry. What little enforcement is required could be achieved by a small number of vessels in each individual member states coastguard or navy. After all Norway possesses an enormous coastline and manages to achieve this with a proportionately small fleet. Whether anyone can agree on the common fisheries policy would be a much greater question.