Government regulation is one of the favorite targets of the corporate political class. Lots of folks complain about how government regulation is too complex, too burdensome and hinders economic growth.
And I will admit that regulation can be overreaching, even silly at times — like the requirement, in some states, that you have to have a license for braiding hair. Although I would argue that in many cases, the problem isn’t so much too much regulation, but rather the wrong regulation. Like a sword or gun, regulation can point in either direction. It can be used to protect the environment and the health of workers, or it can be used to fatten the pockets of special interests. It can create competition or stifle it. It really depends on who is writing the regulations.
Still, there does seem like there is a lot of it. Why is this?
Many of my acquaintances on the right would argue that this is simply an unavoidable side-effect of bureaucracy; that government agencies naturally and inevitably engage in empire-building and expanding the scope of their influence. The late Dr. Jerry Pournelle often used to quote his “Iron Law of Bureacracy”:
In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.
I don’t believe this is true.
In fact, I am skeptical of all so-called “Iron Laws”. A friend of mine used to say that any science that has the name “science” in it (like “social science”) isn’t really a science, and that “real” sciences (like mathematics or biology) don’t need to advertise the fact that they are sciences. I would make a similar argument that any law that feels the need to put the word “iron” in it is signaling a level of insecurity.
My own theory is that the large amount of government regulation is in fact an adaptive response to a basic flaw in capitalism.
You see, in a capitalist system like ours, profit-making must take precedence over all other goals. Anyone who puts fair trade or environmental protection over profit will eventually be put out of business by less fastidious competitors. The company directors are required by law to put profit over all other concerns; those who do not will be sued in court by their shareholders.
Companies who wish to advance nobler goals can only do so if they are able to align those goals with making money. So a company might support reducing its environmental impact because it creates goodwill among their customers, and thus generate more sales in the long run. Some manage to achieve this alignment, but for others this is simply not possible. And in the world of complex, deep, global supply chains, many companies are unable to even assess what impacts they have in the world.
At no point will I claim that the people running these companies are immoral or evil. Rather, the logic of the market compels them to act in certain ways.
So how does a company maximize profits? By exploring all of the possible strategies for making better products at cheaper prices. Including strategies that you and I might not approve of.
Companies aren’t the only kinds of systems that survive by exploring every possible strategy. Take for example, life itself. Just about every possible ecological niche on this planet is occupied by some organism. Every possible method for powering metabolisms with ambient energy is utilized somewhere. Life is fiendishly inventive when it comes to survival.
The problem comes when an organism — such as a virus or parasite — evolves a survival strategy which is harmful to our goals and desires.
The term fitness function originates from explorations into genetic algorithms and simulated ecologies. In a competitive environment, those entities which have the highest fitness score will prevail, and eventually displace their competitors.
However, when designing a competitive system, it is extremely important that the fitness function be defined correctly, otherwise you may get results that are very far from what you wanted. It’s very much like the advice one gets when making wishes — “be careful what you wish for.”
For example, about 20 years ago, there was a lot of interest in genetic algorithms. One computer scientist decided to see if he could create simulated creatures who would learn how to walk — that is, given some initial configuration of “limbs” and “muscles”, could these creatures evolve a geometry and behavior that would allow themselves to travel over the landscape?
For this experiment, the scientist created a very simple, almost seemingly foolproof fitness function: the most fit organism was the one that traveled furthest from the starting point in a set period of time.
After the first run of the simulation, the scientist realized that something was very wrong — the winning creatures were ones that propelled themselves by striking their own bodies with a hammer-like limb. It turned out that there was a tiny numerical error in the calculation of conservation of momentum within the simulation, and the genetic algorithm had discovered this flaw and exploited it.
After fixing the problem, the scientist did a second run. This time it evolved creatures who were extremely tall, and “traveled” by simply falling over. You see, the fitness function only tested how far the creature’s center had traveled, so falling over counted as traveling.
It took several more tries to get a fitness function that worked, and the result was beautiful, eerie alien creatures that propelled themselves in strange ways.
We are in a similar situation with capitalism. We have these highly intelligent, competitive entities called “corporations”, and we have given them a simple fitness function: make money.
The problem with this is that we really have many more desires in life — desires for happiness, health, social contact, beauty, and so on. We want jobs that will sustain us, healthy air that we can breathe, water we can drink, and education for our children.
The capitalist fitness function doesn’t take these other factors into account — at least, not directly. Companies only satisfy us when we satisfy their fitness function — profit. And while it is sometimes true that companies can do good and make a profit at the same time, if at any point “public good” and “profit” come into conflict, “good” has to take a back seat.
Most companies do in fact accomplish both good and harm at the same time. The company that makes a vital medical instrument might also unknowingly utilize sweatshop labor in the manufacture of its components. The problem here is that it’s easy to sweep the harm under the rug where customers won’t notice it.
Adam Smith’s theory of the “invisible hand” of the market was an attempt to show how individuals, each working for their own profit, could serve the betterment of everyone. However, Smith was well aware of the limitations of his argument — it only works if certain preconditions are met, preconditions which are becoming less true every year. Customers have to be able to know what they are buying, what the consequences of their decisions are, and must have meaningful choices as to what to spend their money on. In particular, Smith’s theory envisioned an economic landscape consisting of many small competitors — not an oligopoly where there are a few giant companies controlling broad swathes of the market. And Smith never anticipated supply chains so complex that no single person could begin to grasp the consequences of a given purchase.
The purpose of government regulation, then, is to supply the missing parts of the corporate fitness function. It’s basically telling corporations that in addition to maximizing profit, they have to pay attention to these other goals.
Unfortunately, we have not yet invented a way to state these other goals broadly and generally — there’s no simple rule that companies can follow to maximize human happiness. Instead, we have to regulate each and every little outcome — how many parts per million of lead are permitted in the water, how safe electrical wiring has to be, and so on. Because corporations have evolved fantastically complex strategies for achieving their purpose, government regulation has to be fantastically complex in response.
It’s an ungainly and ugly tool. Unfortunately, at the present time, it’s the only tool we have.
