This article quoting the economist Raghuram Rajan (now tipped by some to be the next RBI Governor) brings up an important issue – that of regulation. Unlike Mr. Raghuram Rajan, I would argue in much simpler terms. The number of regulations is too many if their number exceeds zero. In simpler terms, every regulation is one too many.

Advertisement

 

What is regulation

The word regulation is one of these new-age words that had crept into our vocabulary in a rather insidious fashion. Today, most people look upon regulation as something necessary without which unbridled greed will result in undesirable outcomes. “Some regulation is necessary”, argue most people.

But what IS regulation? Very simply, it is a set of mandates or restrictions imposed by government on particular sets of citizens. Depending on the particular regulation, the set could become large enough to encompass all citizens. However, the important point to note that every regulation is an act of coercing one or more citizens with the aim of making them follow particular courses of action or preventing them from following particular courses of action.

So, regulation is coercion. Economically speaking, it is a form of violent exchange. From the perspective of economics, violent exchange lowers overall well-being. The victim of the violent exchange is forced to give up a more valued good for a less valued good or nothing at all. The recipient of the violent exchange clearly benefits, but the impossibility of comparing value across people leaves us with only one certainty. There is loss of utility and well-being to the person being coerced. The rest of it is plain wishful thinking.

 

Regulation and the labour market

This is especially true in the labour market where capitalists can only offer any factor of production its discounted marginal value product, i.e., the present value of its future marginal contribution to revenue. If capitalists are forced to pay more, they will employ less of the factor until the factor price equals its DMVP once again. The result of regulations in the labour market is, therefore, chronic unemployment.

All forms of labour regulation – minimum wages, mandatory contributions, gratuity, firing restrictions, child labour laws, etc. – raise the costs of employment. Therefore, they are all retrogressive. So, the only real solution is to repeal ALL these retrogressive regulations in the labour market. The only hurdle is the political one. The rest is just playing with words.

 

– Written by Bala

Advertisement
The following two tabs change content below.

Vanguard B-School

Vanguard is founded by IIM & XLRI alumni with the objective of creating industry-ready achievers for Corporate India. The programs at Vanguard are designed keeping in mind the right mix of practical Business Knowledge, Industry Skills, and the Attitude of an achiever. A uniquely designed Mentorship Program with more than 50 industry experts from various industries will provide personalised guidance to each Vanguard student.
2 Comments

Leave a reply

BMS.co.in is aimed at revolutionising Bachelors in Management Studies education, also known as BMS for students appearing for BMS exams across all states of India. We provide free study material, 100s of tutorials with worked examples, past papers, tips, tricks for BMS exams, we are creating a digital learning library.

Disclaimer: We are not affiliated with any university or government body in anyway.

©2020 BMS - Bachelor of Management Studies Community 

A Management Paradise Venture

Ask Us On WhatsApp
or

Log in with your credentials

or    

Forgot your details?

or

Create Account