Wednesday, December 6

From the Editor's keyboard

Well now, I have never been a 'column' before, it really is quite satisfying. The first of my irregular pieces in The Journal was published today. The theme ' Many large companies - while making ritual protests - actually welcome regulation.' Comments please to the letters editor of The Journal -
In my View
Peter Troy

Regulation is perhaps the most misunderstood issue in terms of cost, origins and job creation potential.

A case in point is The Think-Tank Open Europe's Report published this week, which finds that the EU's financial service action plan "will cost the UK up to £23.5 billion".

The EU Enterprise Commissioner, Gunter Verheugen complained last month that compliance with the EU Single Market Regulation costs €600 billion a year, the EU Commission itself boasts that that the Single Market benefits the economies of the EU to the tune of €164.5 billion a year.Most often, regulation disproportionately increases the cost of compliance for smaller businesses, while actually favoring larger companies. Often large corporate companies see regulation as a welcome means of driving their smaller, innovative competitors out of business - and a far cheaper way of increasing market share than advertising.
Regulation also tends to make new entry into a given sector much more difficult, as the initial investment and early operating costs are much higher. This again helps established players avoid competition from smaller newcomers.Regulation creates lots of jobs. Britain's ever expanding Army of Inspectors, Enforcement and Compliance Officers. Additionally Consultants who advise businesses rely solely upon regulation. As well as the Unions – they make a small fortune out of training and compliance monitoring, particularly in the field of health and safety and especially Employment Law.

What is not generally understood is that many large companies – while making ritual protests – actually welcome regulation and in fact, much of the technical legislation promulgated by the EU actually originates from such companies.
The reason for this is quite simple. Basically, in crowded and highly competitive markets where there is little scope for expansion, market share can only be gained at the expense of competitors. While the traditional route, through advertising, is expensive and uncertain, the corporates have found that regulation can do a much better – and cheaper job.
The mechanism works because regulation generally has a disproportionate effect on small and medium enterprises so that suitably framed laws can put competitors out of business, leaving their customer base up for grabs. Compared with the costs of advertising, compliance costs tend to be relatively modest and can often be recouped through price increases, making regulation one of the most cost-effective means of increasing market share.

The 200,000 member strong Federation of Small Businesses rightly complains that: -

"Regulation, both its volume and complexity, crime and a poorly skilled workforce are issues that we have raised many times before. It is therefore worrying that they are still the main barriers to growth for small firms. It demonstrates that action taken so far has been inadequate.''
Indeed so but it is easy to put the responsibility for "regulatory reform" directly onto government. Most regulation stems from big business's pressure and lobbying, which desperately needs to be countered by the smaller business community at source.
The people who usually do not benefit from the mass regulation industry are consumers, with costs being driven up and choice being driven out by the lack of competition. But there is often compensation in the form of foreign producers, who either ignore the legislation, or who go through the motions so as to appear to be complying but the people who will never complain are the "consumers" – or at least their representatives.
There is a major industry in consumer representation whose call will always be for more regulation, and always to "protect the consumer". So the merry-go-round goes on. There is actually good businesses in them there regulations (for all but small businesses) which means that no-one is going to take the Open Europe's or for that matter my continuing concerns very seriously.

1 comment:

Pat (NYC) said...

Thank you so much for posting your 'irregular column'. I loved reading it and have to say "it does not only pertain to the UK"!!!