Red tape may restrain recoveryDec 18, 2008
REGULATION used to be a dirty word. It implied heavy handed state intervention getting in the way of free enterprise. The consequences were often unforeseen and harmed the very people it was supposed to protect. One thinks of post-Maxwell pension protection legislation contributing to the closure of so many final salary pension schemes.
That said, many would argue that free markets left to themselves act against the public interest and require regulation to protect the vulnerable. At one time, that might have been a compelling argument. However, the banking industry â€“ one of the most regulated industries on the planet â€“ has just proved that even highly regulated markets can find new ways to implode.
Is more regulation the answer to market efficacy? Or will it, ultimately, stifle enterprise for years?
There is now widespread clamouring for further regulation of the financial services sector. Many of us in the business community may now be more concerned about the ramifications of the credit crisis than the burden of regulation. But when economic conditions improve again, the weight of regulation, both on our own businesses and on our financiers, may again hold back the much needed economic growth.
The cost of complying with regulation seems to have risen exponentially over the last twenty years. Independent studies have concluded that regulation hampers business, channels resources away from more efficient uses and acts as a constraint on innovation, productivity and growth. It is particularly challenging for small and new businesses that donâ€™t have the necessary resources.
Such businesses could easily find that, after the time taken to comply with the mass of legislation that affects them, they donâ€™t have time to earn any money. Without new businesses, markets are dominated by a handful of large players wielding too much market power.
One answer is to seek specialist help. Here at Baker Tilly, we can help navigate you through the regulatory maze and devote your time to what you are good at. It can be far more productive to do this rather than to try to save money and do it all yourself. The former can often be safer.
Regulation certainly isnâ€™t going to go away, and in these troubled times, â€œderegulationâ€ is more likely to be something our children will read about in a history book rather than in a political manifesto. Whilst we will always rely on risk takers and innovators for long term growth, it is going to be much harder to satisfy regulators that we are grown up enough to be left free to act as we might wish.