Wednesday, December 08, 2010

Advisers in a Free Market

In several of my editorials I recommend abolishing the regulatory state. A key component of the argument is that the function of regulation would emerge on a free market without requiring government force. Here's one excerpt of this type of argumentation:
But if ceding our minds to the government isn’t the way to protect ourselves against ignorance, what is? The free market. For here, knowledge is efficiently shared, and authorities and standards naturally emerge. Yet everyone retains the freedom to follow their own ideas if they so choose. Looking once more to the computer industry, we see that there are computer magazines (PC Mag, Macworld), computer rating and standards groups (CNET, IEEE), and countless online message boards and forums where experts, aficionados, and neophytes alike congregate and share information. Knowledge is valued, but it’s not forced on anyone. This makes disagreement, dissension, and often breakthrough innovations possible.
and here's another:
In a free, unregulated market, anyone who is highly risk averse can—and always could—refrain from using new products or adopting new ideas. Indeed, on a smaller scale, this is what differentiates technology late-adopters from first-adopters. Those worried about the latest cancer drug can limit themselves to treatments that have been on the market for 15 or 20 years. Those who don’t understand the stock market or distrust corporate leaders can invest elsewhere, or keep their money in a safe. Those who find planes too risky can drive rather than fly, or spend extra for a premium airline with a sparkling safety record. (As discussed elsewhere, there are many free market mechanisms to convey knowledge and help with such choices.)

Moreover, in a free market, the regulatory “geniuses” who now rule our lives could still try to persuade us of the best course of action—they could even set up shop and charge us for their knowledge. The only thing they could no longer do is forcibly impose their judgments on us. (I’ll leave it to the reader to decide what it says about regulators’ confidence in their own edicts that they so vehemently refuse to go the route of persuasion, preferring instead to rule by government force.)
There are many historical examples which bear out this line of reasoning, but here's one that I wasn't familiar with until reading this NY Times story. Turns out that many businesses voluntarily adjusted their business practices in order to meet a third party's recommendations and evaluations:
When Weight Watchers introduced its points plan to Americans in 1997, it captivated a generation of women, propelling the company into a $1.4 billion empire. Weight Watchers points became a cultural touchstone: Restaurants like Applebee’s distributed special Weight Watchers menus; food companies like Healthy Choice listed points on their soup cans; and members bought Weight Watchers cookbooks, scales and points calculators. Members pay $12 to $15 a week to attend one of 20,000 weigh-ins and pep talks across the nation, or $65 to use the company’s Internet-monitoring program for three months.
Were we to restore our freedoms by ending government regulation, all manner of third party -- private -- advisers, standard setters and auditing groups would help provide us with the knowledge and information that's needed in modern life. But, just as we're not obliged to heed Weight Watchers' advice, we wouldn't be forced to pay for, or adhere to, any of their evaluations or opinions either.

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