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But Don’t Businesses Need to be “Regulated”? Blog By: Wald Branehart

But Don’t Businesses Need to be “Regulated”?

Capitalism calls for a separation of state and the economy, without regulation of private sector businesses by government.  But don’t businesses need to be regulated by governments to protect people’s individual rights?

The answer is: no, they don’t.

But then, if businesses are not regulated, what would stop them from rampantly making dangerous products, defrauding consumers, breaching contracts and committing (and getting away with) other injurious actions?

The answer is: not regulations, but rather laws – properly formulated, to protect the individual rights of everyone.  As the foregoing makes clear, the fundamental distinction is one between the proper concept of laws, and the concept of regulations.

Properly constituted, laws are binding rules designed to protect individual rights.  Philosophically speaking, man has four basic rights: those to life, liberty, property and the pursuit of happiness.  A right to life means man can choose to live if he wants; he does not have an obligation to fall on his sword for anyone else if he does not want to.  A right to liberty means man has the freedom to take those actions that he must to live.  A right to property means he has control over the use and disposal of the material values he rightfully owns.  And the right to the pursuit of happiness means he can decide for himself which values will make him happy and then pursue them.

Because man has rights, he is entitled to be free from other people violating these rights by starting, or initiating, physical force against him. The most obvious form of force is direct physical agency like beating or shooting someone (a violation of the right to life), kidnapping or wrongly incarcerating him (a violation of the right to liberty), or stealing his property (a violation of the right to property). Credible threats to do such things to another person are also considered force, because they have the same effect as the actual acts themselves in that they cause someone to give up his rights and obey the force wielder; deception, such as through acts of fraud or defamation, is also a form of force.

To protect rights to life, liberty, property, and the pursuit of happiness, governments pass laws banning the initiation of physical force against other people.  Today all developed countries have similar laws that do this, banning negligence; assault and battery; homicide; false imprisonment; theft; fraud and misrepresentation; defamation; trespassing on others’ property; and breach of contract. Although there are differences from country to country, these rules form the basis for the codes that protect individual rights worldwide.  These laws may be civil laws, resulting in the awarding of monetary damages to compensate a victim upon a finding of liability of the accused; or for more severe offenses they may be criminal laws, resulting in fines, incarceration for significant periods, or even death to the accused upon a finding of guilt.

In contrast with proper laws, regulations (which are also called ‘laws’ by the left to package-deal them with proper laws, and are given the force of law by governments) do not protect individual rights. Rather, they order businesses to follow certain procedures when conducting their affairs that have nothing to do with violations of rights or force.  For example, some regulations may tell businesses how to value their assets when doing their accounting.  Other regulations may tell businesses how to design mechanical devices or what fuel mileage the cars they produce must get. Still others may order them to use certain materials when making clothing or specify procedures to be followed when making food products.  Still others may tell businesses how securities are to be bought and sold.  Today there are so many thousands of regulations on the state and federal levels of government controlling almost all aspects of commerce that virtually no business can follow them all to the letter.

Governments justify the passage of regulations on the ground that they are necessary to protect the “general welfare” or the “public interest” by specifying procedures that ban dangerous products and deceptive trade practices.  And to many people, this sounds credible and regulations seem like a good idea.  However, the truth is that regulations are not made by anyone who knows how to keep people safe other than by banning the initiation of physical force. There is no special governmental “know-how”, for example, that justifies bureaucrats coercively micromanaging others’ lives, regulating businesses or making products safer or better or whatever with “governmental oversight”.  Governments, for example, do not know how to build cars or trade securities or make food or clothing or anything else better than the private sector companies who make these things do.  For this reason, regulations do not make businesses more efficient or their products safer or of better quality.  All regulations do is cause businesses to spend inordinate amounts of time and money to comply, destroying their profitability and success thereby.

If regulations do not protect individual rights or make businesses’ products safer or otherwise better, then why are they passed – and why do they proliferate?  The truth is that regulations allow governments to either shake down and/or effectively take control of private businesses, forcing them to work to further governments’ objectives rather than those of the companies’ rightful owners. Governments do this by essentially playing “gotcha” with the companies they regulate, using the fact that, as mentioned earlier, regulations are too numerous for companies to completely comply with.  Any infraction can give governments leverage to levy fines or compel management to comply with whatever demands they wish to make.

In a free society there is no justification for regulations.  If a business negligently, knowingly, intentionally or recklessly acts in a way that violates others’ rights, it should be prosecuted and held accountable; it should not be ‘regulated’.  For example, if a car company creates or markets unsafe models that cause injury or death to others or their property, such as the Ford Pinto during the 1970’s, the solution is to convict and imprison the officers and engineers who knowingly approved the dangerous design and levy heavy fines against the company; it is not to start telling all car companies how to design their gas tanks or chassis or engine blocks or whatever.  (This is actually the job of liability insurance underwriters.)  If a CEO of a major corporation directs the accountants to “cook the books” by greatly overvaluing assets and causes the company’s bankruptcy, as was done at Enron Corporation, the solution is to prosecute the CEO and the accountants for fraud. It is not to start specifying how all companies are to conduct their accounting procedures (as the American Federal Government did with the Sarbanes-Oxley Act).

As for deterring future violations of rights by others, whether they be businesses or individuals, this will be accomplished by holding the violators of rights accountable for their actions.  In this manner inferior and dangerous business practices will be abandoned, and be replaced with safer and better ones over time.

In sum, businesses (like individuals) should be held accountable for violating others’ rights – but no they should not be ‘regulated’.

© 2009 by Wald Branehart

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