In the American Conservatism encyclopedia, George Mason University economist Richard E. Wagner reminds us: “All economic activity is regulated. There is no such thing as an unregulated economy.”
The public policy question is whether regulation should occur through public or private ordering.
Through private ordering, the number of new products that software developers create in a year is regulated by such things as the creativity of those developers and the willingness of consumers to buy their products. It is also regulated by the ability of computer manufactuters to develop new hardware and to control costs, as well as by the attractiveness to consumers of other offerings generated elsewhere throughout the economy. Private ordering through free and open competition generates a dense network of cooperative relationships throughout society. This method of economic regulation leads producers to produce what consumers want, and to do so efficiently.
The same cannot always be said of government regulation through public ordering. With respect to the software illustration, it would be as though new software had to be approved by a government agency, much as new pharmaceuticals must be approved by the Food and Drug Administration.
Wagner then deals with the argument that public ordering might appear more appropriate in some sectors — including those dealing with health and safety.
The politics of government regulation often generate outcomes that vary systematically from the claims advanced in support of such regulation. To a large extent, this is because political processes tend to reward well-organized interest groups, regardless of how strongly that reward diverges from the arguments advanced in support of regulation. Much government regulation protects inferior competitors by penalizing superior competitors. Consumers thus pay higher prices and receive inferior products.
Wagner leaves us with a generalization about government regulation: “[R]egulation benefits the politically well organized at the expense of the politically poorly organized.”
