Can a 'free market' be truly free, without freedom?
Regional, Analysis, 6/17/2000

In the last article (see first reference) we explored defects in poor and developing free-market-economies arising from the lack of good regulation. So the analysis on the need for good regulations hinted at the need for a minimum amount of regulation that is needed for the proper development of an economy. Now, we complete the answer, and go in a different direction, and we hint at the need to place an upper limit on the amount of regulation needed as the economy develops.

As a general statement, every regulation carries costs and benifits and can be a limitation on freedom and liberty which are essential parts of any dynamic society and economy. Therefore regulations and laws must be weighed in terms of their benefits and costs. Among the costs that are not considered by governments and regulatory bodies in this cost-benefit equation is the cost incurred by the loss of liberty or freedom.

This cost can come in many different forms, but the one form that is not cited is the cost brought about by complexity. By this, we do not mean simply the cost incurred by a business or an individual trying to process a certain government application or comply with a regulation, which is indeed a cost that should be considered. What we mean by 'complexity of laws' is that they can become an impediment to freedom and can be used by government or regulatory agencies as an instrument of harassment, subversion or coercion. We can always attain great efficiencies , in the short term, if we choose to suppress liberties, but a civil society would consider this a great cost.

To illustrate, in a recent conversation about investment and the stock market, a manager in a company indicated that he would be interested in purchasing stocks of the company he works for, based on certain privileged information that he acquired. Very quickly, it became evident that this individual had absolutely no idea or understanding of the laws that exist relating to stock purchasing, where these laws prevent what is known as "insider trading." This concept itself was difficult to explain to this individual. So in effect this very decent and model citizen who has never broken a law was about to be made a criminal by the government or some regulatory agency without his knowledge. How can such a phenomena be morally made defensible? And this law on 'insider trading' is not by any stretch of the imagination the most complex of the laws and regulations that exist.

This individual through no ill or criminal intent or any other intent, by acting in what seems to be a very logical and natural manner, was about to commit a serious crime, according to the law.

When one looks at the amount of laws that are passed, and the complexity of these laws on different issues, it becomes very clear that these laws bear a heavy cost on Liberty and on freedom, as the government can selectively, if it chooses, find almost any individual in breach of some existing law.

Now, this analysis may seem abstract to the average citizen, but the more important you are to the government, for any particular reason, as an individual or an organization or a business, the more likely that you will appreciate these arguments. The protection of liberty and other rights are not needed by the average citizen in the course of average events! And, the government has practically infinite resources at its disposal to pursue an objective, if it so chooses.

Since the government always places blame and responsibility for a breach of the law directly on the individual or commercial or civic entity involved, the government and regulatory agencies by constantly issuing laws that citizens and such entities at large can in no way be aware of their existence and what they mean or how they apply, will create a widening valley that separates the citizen from the government and in the process breaks the bonds of trust and weaken the foundation that binds a citizen and his government. A business, if it is large, usually is better capable of dealing with such issues as it has more resources, and many laws specifically exempt smaller companies due to this reason. But that is not a consideration in most laws. If a small business person, for example, places the responsibility of a certain function of that business in the hands of a certified professional, let's say environmental professional or accountant to handle that aspect of the business for compliance, then even though you have hired such certified professionals, they will not be the ones responsible to the government for their mistakes but rather the business or person himself.

So here we can say, be it for business or for an individual, that complexity can easily become a tyranny and a tool that the government can use at its discretion any time it sees fit. It is not important, the fact, that the government has this power and it has not used it on you, yet. What is important is that the government has such powers at all under these circumstances.

In dictatorial regimes, governments use police force to harass a citizen or a business, while 'modern' governments are more sophisticated about doing the same thing, as they too are capable of such acts and harassment through existing laws that are multitude, comprehensive, and cover every aspect of life that you can imagine. It is quite possible that there may be a law somewhere on the books that would find 'breathing ' illegal. Have you checked? You will certainly be surprised at what you will find, even if you found out that 'breathing' was not illegal. You will be stunned at what you will find in terms of available laws and regulations, and how they are 'interpreted' and how they are applied!

Unlike in a dictatorship, Western societies do however offer some protection through the judicial system. However this protection comes at a financial cost, and the amount of protection you may have, will in great measure depend on your financial resources. And, always remember that the government has much more resources than you.

It is therefore crucial that laws and regulations be simple and comprehensible and accessible by those for which the laws or regulations are intended to apply to.

But we must state clearly that there are areas of the law and regulations that require complexity, as modern societies are complex entities. When that is the case, along these laws and regulations, there should be the condition that those who have to meet those obligations can be protected from responsibility by simply hiring certified professionals in the particular area of the law or regulation that is being dealt with.

It would seem logical that a person that builds a building by hiring certified engineers and when the building has been certified by government regulatory agencies, that the owner of this building should not bear responsibility if the building collapses the next day. But crazy as it may seem, that is exactly what happens, because the law, without getting into the technical details, lays blame on the first party in the chain of responsibility. So, to minimize the effect of this seeming craziness, the owner can purchase insurance, which serves as a buffer of protection against such condition.

But how come such a citizen is not capable of purchasing such insurance instruments for other public or commercial activities to protect himself from the government when he has done what is expected by hiring certified professionals to do a particular task on one's behalf???

We probe and give some examples to hint at the underlying fundamental concerns and questions without having to deal with all the technical details of such an issue related to laws and regulation.

If a multitude of I.R.S. lawyers can themselves not understand the immense body of tax laws and regulations, then it can be legitimately asked : "how can a citizen or an entity be held responsible and liable for not being compliant with a particular aspect of such laws?" If a government insists on such degrees of complexity in laws, then the government should have the responsibility, to add as part of the law, that you as a citizen or an entity, once you hire a certified professional to comply with these required laws and regulations, then your responsibilities will end. We use the complexity of the tax laws because everyone is somewhat familiar with this issue.

Therefore as part of the equation of formulating laws and regulations, it is essential that such notions as complexity, freedom, liberty, be made a part and parcel of the cost-benefit assessment of any such proposed laws and regulations. These are issues that can be difficult to measure (quantify and qualify). Nonetheless, they should be considered. And, with practice and persistence, a great deal of progress can be made in this area so that these concepts become an effective part of the formulation and consideration of public policy. We need not stop here, as we would most certainly add other important fundamental components into such equations that a society would be wise to value such as environmental concerns, etc.., as some governments already do.

So we ask you if you are a citizen , a business person, or company or someone that has concerns about commerce, or liberty, or the environment, or privacy, or any other social or business issue: How many laws that were passed in the last year are you totally familiar with in your area of concern? How many laws, any laws, are you familiar with that were passed in the last 10 years? So, if you don't know the law, how do you know if you have not already broken one of these laws? Is it possible? At this time, you may not be an important person and no one is interested in you, but what happens if you decide to run for public office? Do you think they may become more interested in you then?

We conclude that a good government in a developed economy should place great value on liberty and freedom as fundamental ingredients to maximize development potential by explicitly taking these ingredients into consideration when formulating laws and regulations.

Previous Stories:
  Can a 'free market' be bad for development?   (6/17/2000)
  The state, religion, and the individual in public life   (4/12/2000)
  Quote of the day: What is most precious for us is our Liberty   (3/28/2000)
  The press and its role in development   (1/25/2000)

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