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Evan Davis on... regulation

Updated Thursday, 18th March 2010

Evan discusses the benefits and losses of regulation for the customer

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When it comes to the subject of government regulation of business it’s not too simplistic a caricature to say that, in general, businesses don’t like being regulated and, in general, consumers seem to rather like businesses being regulated. Now, maybe both sides aren’t understanding regulation because in general regulation is rather complicated and has differential effects on consumers and differential effects on businesses. So no one should be utterly in favour or utterly against it.

Let me take a very simple example. Suppose somebody proposed a regulation that said airlines have to offer an onboard meal, on any flight that’s more than two hours long. Now, consumers might be inclined to say ‘Yes, that’s very nice, we would like to have a meal’ but, of course, the price of aviation would probably have to go up a little bit to cover the cost of the meal. So who’s really losing on the consumer side? Well it’s the consumers that would rather have a cheaper flight without a meal than the ones who would like a meal and don’t mind paying for it, they’re really rather unaffected. But the effect is differential.

Similarly on the business side, the regulation will have the effect of hurting the airlines that perhaps have a business model that relies on not worrying about airline meals and has a lesser effect on the full price airlines that offer a meal already. It’s a differential effect. Now in each of these cases what one would expect is consumers to weigh up whether this particular regulation benefits them or not and form an opinion accordingly, and for business to do so too. And you wouldn’t be going too far to say that in general probably the businesses that benefit from the regulation will be about half and the businesses that lose from it will be about half.

Now of course, regulation may go way too far and hurt everybody in an industry but I would posit that most regulation isn’t like that. It’s there, it has an effect benefiting some and hurting others, and when people think of framing their response to regulation, rather than having a wholesale view of all regulation they probably need to think very carefully about each particular one and how it affects them.

That’s my view, you can join the debate with the Open University.

 

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