Are we over-regulated? Of course, we are. Everyone says so. Everywhere you look there are laws that restrict us from doing stuff. We can’t walk across the road without breaking some law.
What about business. Are they regulated enough to stop white-collar crime? Obviously not. Look at any newspaper and see companies doing things that are in a grey legal area, but morally they are obviously wrong.
What about consumer rights. Are there gaps in consumer law? Of course. There are gaps that allow pollution, waste and environmental damage.
So are we over-regulated? …… Depends.
The Triangle
To understand the difference between over-regulation and under-regulation, we need to understand why we need laws. In an idealistic world, everyone would behave in a moralistic way and there would be no need for laws. Of course, a moral world does not exist now, it never has and is never likely to exist.
The world of law exists as part of a triangle. The three parts are “Morality”, “Self-Interest” and “Legality”. The triangle must be kept in balance for society to function.
Morality
There is an old adage :
“Do unto others as you would have them do unto you.”
It is at the core of morality. Basically, we are talking about the foundations of society. The rules we make in order for us to live together. Morality is doing the “right thing”. Morality is taking others into consideration. It holds values such as equality and truth in high regard. If the world was completely moral, there would be few man-made problems in the world. Unfortunately, people are not always moral.
Self-Interest
There is another old adage:
“Do unto others before they do unto you.”
It is the core of self-interest. People are competitive. People are greedy. People want instant gratification, so they put their morality aside and do something that will benefit themselves. In some ways, self-interest is as natural as morality. It is a form of survival of the fittest.
Legality
If there is this constant tension between morality and self-interest, there must be a third force to define how far you can go. To define the line between the two. It may be in your self-interest to not pay the fare on a bus, but it may also be immoral. We need legality to define where the boundaries lie, and the penalty for crossing those boundaries.
A Balance
So, the three concepts of Morality, Self-interest and Legality exist in balance. One cannot exist without the others. Without laws, we are no better than a warring tribe. Without morality, we destroy society. Without self-interest, we would live in a world without any sense of achievement.
Role of Law
The thinking for this post started from a quote I heard on a podcast talking about repealing laws. Some lobby group was pressing the government to repeal a law that restricted their industry achieving financial goals. The quote was along the lines of:
“Never repeal a law until you understand why the law was created, and the impact of taking that law away.”
It made a lot of sense. Many laws created to manage people, companies and economies had their genesis in somebody acting in a way that was immoral and in their self-interest. Take the Sarbanes Oxley Act. No idea what it is? Sarbanes Oxley was a suite of laws imposed on companies after the collapse of Enron and Worldcon amongst others. It was intended to stop a repeat of the acts of self-interest that led to the fraud and collapse of these companies.
Not to bore you, it covers accounting and auditing activities, financial disclosure, white-collar crime penalties and corporate fraud accountability. If it can be summed up in one word, that word would be “governance”. All very boring stuff to most of us, but it was designed to avoid the immoral acts of the early part of the 21st century that led to both individuals and companies losing billions.
Now, many companies and lobby groups are pushing to have the legislation wound back. No longer needed. Too expensive. We have learnt our lesson. Politicians from the US right are pushing hard to have the legislation repealed or at least watered down.
Hands up who believes the problem will never return if we remove the act. Either I am at a conference for amputees or nobody agrees the problem has gone away. Sorry, forgot to count the man with his hand up down the back. The one with orange hair.
Change of Balance
There was a view not so long ago that a company existed just to make money for its shareholders. Ignore the morality. Focus on self-interest and legality. How far can self-interest be pushed within the legal boundaries?
But the world is changing. Morality is making a comeback. Companies are finding that shareholders are putting demands on them that are not in the self-interest stream. Things like climate action and avoiding the cheapest source of manufacture if it involves third world slavery. It is as though morality is forcing some pseudo laws onto the self-interest of companies.
Groups are springing up to represent shareholders and say to many companies “What damage are you doing to the environment and people connected to the business?” They are challenging everything including the goods produced, the source of raw materials, the treatment of employees including minorities, the payment of tax, environmental impacts and the transparency of accounting. The Cayman Islands is a far less popular location for a holding company than it was once.
Will it Last
Pendulums swing in both directions. Now the pendulum seems to have swung towards the morality side of the triangle but will it last? The answer is not easy. At some point, it will probably swing back, but not as far as it was last time. Some changes will stick. Those related to the environment will likely remain at least.
If you look at the point where the pendulum started to gain momentum, you can probably go back to the GFC. The blatant criminal actions of those in the finance industry caused a stir that focused the general public on acting against these organisations. How senior finance industry executives avoided gaol is a mystery to most people.
The two standard excuses were the “bad apples” defence and the “naïve idiot” defence.
The “bad apples” defence was based on the premise that it was just a few rogue operators in the company and those people had been terminated. Only one or two so not to worry. Generally, we are really nice, honest people. Dig deeper and you find that the bad apples were at least allowed to go about their activities without being reigned in, or were pressured to achieve results at any cost.
The “naïve idiot” defence is that we never saw it coming. The whole company and even the industry never saw something like the GFC or Tech Crash or even Covid. The Board and senior management were completely shocked when it happened.
If these people missed what is now completely obvious, should they not return the money they were paid for being aware of looming situations like these? It was exactly this expertise that they claimed to have had that got them the job in the first place.
Is it acceptable to lie to Investors and Consumers.
It would seem so. Twenty years ago, cigarettes did you no harm according to big tobacco. Perhaps it is us. Maybe in the last twenty years, we have become more prone to lung cancer. Carmakers claim low pollution levels from diesel by rigging testing. Despite proven links between asbestos and asbestosis, companies still manufacture asbestos sheeting for third world countries.
There is also the “don’t ask, don’t tell” approach. We sell bargain-priced clothing say retailers. They do this by using almost slave labour rates to produce clothes. The same goes for many mobile phones and computers. We offer no-sugar soft drinks say the soft drink manufacturers. They do, but that takes up a small percentage of the shelf space. Sugary drinks still predominate.
When it comes to financial marketing, the government said financial companies had to tell consumers what they were buying. Of course, the financial organisations complied. They produced Product Disclosure Statements in 6-point type that run for 50 pages. We all study them before we open a bank account, don’t we?
They use the law to counter morality and improve self-interest. The problem was not the small print. The problem was that in order to avoid scrutiny, financial organisations made highly complex products with obscure conditions. Sell the vista of an ocean and avoid talking about what lurks beneath.
There is another solution. Make the products and document simpler. But then we might be able to compare products. Don’t want that to happen.
Out of curiosity, I asked a guy in a phone shop if I could sit down and read the PDS before I signed up for a plan. He looked at me as though I had asked when he last slept with his wife. He thought I was crazy. I did read through it and asked him a question he could not answer. He had to call someone at Head Office to find out. He told me he had been selling phones for years and I was the first who wanted to read the phone plan document. He had never read it himself.
Conclusion
Laws mostly exist for a reason. If the reason is to do with horse and carts, the law can probably go. If it was put in place because of a particular situation, never get rid of it until the situation is understood, and it cannot happen again.
Of course, some laws were put in place before a particular social evolutionary trend occurred. Laws around gender equality or abortion may have been relevant at the time but society has evolved. By all means, get rid of them.
When there is a call to remove a law, first look at who is asking. Where is their self-interest? If the situation that caused the law to be passed is not occurring today is that because of the law? Will removing the law result in a repeat of the original situation? A return to the bad old days. These are questions to ask before we get rid of existing laws.