Is there an optimal level of regulation that can provide a safety net, but not a glass ceiling?

It sounds like a question affecting a very narrow group of people, but is it? Firstly, in society, if the laws of the land are the cake, then regulation is the icing i.e. an add-on. Something to enhance the result, but not undermine or take anything away from the core product.

Where no regulation of a group exists, the group might itself decide that regulation is a benefit to them. For example a healthcare group wanting to exclude the ‘cowboys’ and keep their profession’s brand intact. Or perhaps wanting to standardise the training requirements and routes within the profession to proficiency.

So would more regulation be the solution? Some people who argue that legalising then regulating the supply of drugs would prevent some of the problems of drug abuse think so.

People who advocate central control of budgets also think a degree of control (by them) is necessary to minimise behavioural gaming and to get a viable (realistic) budgetary outcome.

People who are professional product designers of systems that control traffic flow, heart rate or data, electricity and water flow down  the ‘pipes’ also advocate regulation as the solution to erratic or peak demand, with the problems that those things bring.

But what about the drawbacks to more regulation?

Firstly there’s the question that if more regulation is introduced, will the overall costs be outweighed by the overall benefits? Often the people getting the additional benefits from the regulation aren’t necessarily the people incurring the costs, but are the loudest advocates for change.

Then there’s the power imbalance problem. If the power of the regulator is less than the power of the lobby groups arguing against regulation, then additional regulation will exist in name only and give people a false sense of relief. The global credit crunch and the weakness of the financial regulators leading up to the crisis is a case in point. If illegal drugs were made legal but regulated, what power would the current drug cartel members wield in practice, knowing the profits at stake if they don’t intervene?

Then there’s the definition problem. What should be regulated – the supply of something (affecting its price), the product quality, or the range available? In the case of alcohol, a legal drug, it is currently regulated regarding the age of who can buy alcohol and on quality (it must be fit for human consumption with accurate labelling as to the alcoholic content, amongst other labelling requirements). Even so, the newspaper headlines from time to time still highlight children aged ten or younger securing supplies of alcohol for binge consumption. Furthermore the alcohol and tobacco lobby form a formidable lobby group to lobby politicians on changing the laws away from ways that disadvantage them.

Finally, there’s the political tension problem. For argument sake, assume the UK alone took a radical position and legalised but regulated the production and consumption of certain drugs that are currently illegal to produce or possess. It would no doubt encourage a new export industry and earn taxes for the government. However, unless and until the UK’s major trading partners adopted a similar position, it would likely create significant political tension with those countries, due to the increase in illegal smuggling of such products from the UK platform.

Beware the fixes that backfire.