There is a certain mania afoot in politics these days that everything must be regulated. In the abstract, even a free market libertarian like me would agree. The question is, who gets to do the regulating?
It is here that current conversation fails. For, in general, once it’s agreed that regulation is necessary in a given situation, bickering begins over which bureaucrats get to issue the rules — government regulation is assumed. This misses possibly the most effective regulator: free market competition.
My colleagues at the Adam Smith Institute in London have been mulling this over in a report about airports. Clearly an airport needs a central coordinating body, as we’d prefer to have just one decision maker determining who can use a runway at any one time, to prevent confusion or crashes.
But what’s the best way to regulate things like this? The answer lies in the system that John F. Kennedy Airport and others currently employ. It allows for central oversight of the system as a whole, but still promotes competition within. The key to this is to allow different organizations to run separate terminals. Even if we don’t want price competition (and why wouldn’t we?) we can have such competition based on efficiency, cleanliness, or even the simple joy of the customer experience.
My colleagues are interested in suggesting that Britain should follow this practice, yet I think we should also note the lesson more widely here in the U.S. Yes, it’s true, there are things that need direct government regulation. And yet competition is still possible and is also, in its proper domain, the best method of regulation.
This is obvious in some fields. No one really argues that we must regulate prices at Walmart or Whole Foods. In these cases, we all agree that the best method of keeping their greed in check is competition. It’s also clear that this kind of competition improves the customer experience over time as businesses strive to outdo each other. That competition to empty our wallets is precisely what drives prices down and quality up.
To the economist, this is also precisely the point of international trade. Opponents of trade insist that we must protect domestic producers, lest inefficient American businesses give way to foreign competitors. To the economist, that competition, which drives quality up and prices down, is the very reason to support trade. It’s the justification for trade liberalization, not something to erect barriers against.
We can also make the same point in education.
Sure, a school district needs central management. Someone, after all, has to collect the tax money and allocate it. But that doesn’t mean that direct provision or direct regulation is the best way of organizing our education system.
Why not allow competition between suppliers — all fed by the taxpayer dime — to be our education regulation? This is the very idea behind charter schools and tuition vouchers. One current critique of the charter school system is that independent schools aren’t getting any better any faster than public ones. Even if that were true, it misses the point. Competition drags up standards across the board, the same for schools as with supermarkets.
Some things do indeed need to be directly regulated. Personally, I’m perfectly happy that the Second Amendment doesn’t cover the atom bomb. But for much of life, and a great deal more than we currently allow, competition provides the best regulatory system we’re going to get. We should use it more often.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
