I note some on the political Right are suggesting that there is no logic to my comment that regulation is
the biggest stimulant to innovation there is in the economy.
Well that shows two things. The first is just how little they know about business. The second is that it shows how little they think before they comment. Let's take just one sector, like the motor industry to explore the issue. It's quite true that this was not created by regulation. New ideas are not. And one or two regulations had to be changed to let the sector develop. Having to drive behind a man with a red flag was an initial impediment, I'd wholeheartedly agree.
But let's just look at the things that we would not have without regulation:
1) Almost all safety features in cars (safety belts, crumple zones, non-shatterable windscreens, regulations on brakes etc.) almost none of which have been innovated voluntarily;
2) Fuel efficient engines, which have been developed because of pressure of regulation;
3) Safe cars on our roads, which only happen because of MOT regulations requiring an annual safety check for cars over three years old (see some of those driven in places where there is no such regulation and you'll understand);
4) lead free petrol.
And on, and on, and on. All required innovation. All required investment. All resulted in better products, and motivated consumers to spend on them. None would have happened if the industry had had its own choice. Nor would the car maintenance sector have the critical benefit that MoT regulation provides for it.
Without regulation we would be much worse off and profit would have been far lower. More than that, many people would be dead.
Unambiguously regulation is of benefit, in the main.Which is not to say when a regulation has reached the end of its useful life it should not be culled, usually because an updated version will be needed.
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Hmm. What innovations in the design of seat-belts do you say have been caused by the requirement they be fitted to all new cars? It may well be an excellent idea for other reasons — safety and so on — but I’m interested in the innovations in seat-belt design you say we owe to this requirement.
And, of course, it’s a bit of a leap from ‘Here are some things that might not have happened without regulation in a specific industry where regulation for the purposes of public safety may well be necessary’ to the sweeping statement that regulation is ‘the biggest stimulant to innovation there is in the economy’.
To my mind, one of the greatest innovations, in the ways it’s affected the way in which we work, we design products, manufacture and buy and sell them, we’ve seen in recent decades is the desktop computer. What crucial role do you say regulation played in its development?
I always wonder why people can’t comment under their own names?
That noted, I can only presume Mr Saussure can’t recall seat belts before their use was compulsory. They were belts. No tension lock. No room for moving. Just belts. Then regulation required that they work. So innovation happened.
as for PCs, rather like cars, they did not require regulation to happen. I have made that point. But once thye happened they do need regulation, for safety, to prevent monopoly abuse, to protect copyright and patents and on, and on. Put simply, they might have got to prototype without government regulation. Beyond that they would not have had a hope without it.
The simple fact is, government predates business. Business can’t happen without it.
Richard
I think you’ll find a great number of things have changed over the last 40 years, which is when seat-belts became compulsory in new British cars. The radios seem a lot better than they were then, and as for the CD players, there’s no comparison. I asked not what innovations have happened post hoc but propter hoc.
As to your point that government predates business, you don’t to convince me — or, I think, many people — that a capitalist society needs a legal framework in which to operate. That’s blindingly obvious. But it’s just playing with words to move from (e.g.) the fact we need regulation in the sense of having a Weights and Measures Act, so that we can order goods by weight without having to worry about what the vendor thinks a pound or a kilo actually weighs to (e.g.) saying that goods must be sold in one or the other (I’m not trying to argue for or against metrication — I’m just using it as an example).
If you want to argue that, for example, the book publishing industry benefits from laws on intellectual property and contract (and, indeed, theft, to prevent people from making off with the published books without paying for them) then I agree.
But if you express this insight in the form ‘Publishing needs to be regulated,’ or ‘Regulation is a force for literary innovation’ then people may well misunderstand what you’re trying to say.
“But once thye happened they do need regulation, for safety, to prevent monopoly abuse, to protect copyright and patents and on, and on.”
Are you saying you regard property rights as *regulation*?
Perhaps there’s a teminology problem here. If you were to claim that the existence of a good *legal system* (property rights, enforceable contracts, etc, etc) was a necessary condition to innovation then I might see where you were coming from. But I suspect most people have a rather narrower view of what “regulation” is.
Of course I am not saying regulation is the mere protection of property rights – useful as that is.
I am unambiguous. Regulation drives innovation. Most innovation is incremental. It happens because there is a stimulus to do it. Profit is not that stimulus in the vast majority of cases. Regulation is.
If those who commented here lived in the real world and not that of textbook economics they’d know this is true.
“If those who commented here lived in the real world and not that of textbook economics they’d know this is true.”
Strange. I work for a large IT company. Whilst it is true to say we benefit from regulation (SOX, Basel II, MiFID, SEPA et al are all imposing costs on my clients and bring in a lot of business), I struggle to see how this, in the wider picture, is in any way a good thing.
As for the wider picture, I’m struggling to remember which US federal regulation led to the creation of the iPod (perhaps the auto volume limiter was the key invention from which everything else flowed?) or figure out which regulations were responsible my ability to search the web for free at high speed (“Search Engines (regulation of)” Act of 1995, perhaps?). Perhaps the Firefox browser, which allows me to surf the web in relative safety, was only possible because of a government intervention somewhere?
I just don’t see it.
Of course, if one wants to look at this from a *producer’s* perspective, which I’ll admit is a valid thing to do and is very popular amongst those on the “left”, then regulation usually *is* a good thing. The FDA is rather convenient for the big drug companies (keeps out competition – barriers to entry are so high) and the MOT requirements are rather good for the garage trade. For everyone else, however, (those dying while they wait for their drug to be approved being the most obvious example), regulation is something to be viewed from the perspective of: “do it only if you absolutely have to.” It’s a necessary evil, but an evil nonetheless.
“I struggle to see how this, in the wider picture, is in any way a good thing.”
Sorry – should have been slightly more subtle: I’m not saying that SEPA, MiFID et al are bad things – there is some goodness in them – my point is that they are inconveniences and not things that make anybody jump with joy.
The most obvious example of regulation promoting evolution and innovation is pollution.
As governments regulate to reduce pollution, companies have to be inventive to find way of complying with the new regulation whilst retaining their competitive edge not to loose markets.
This is such an obvious comment that I fail to see how anyone could ever contest what you said Richard. Anyone with a basic understanding of economy and public policy could see the logic.