Benefits and costs of regulation
Regulatory requirements to protect the environment, workers, and consumers often lead to innovation, increased productivity, and new businesses and jobs. Although an argument is sometimes made that the cost of complying with regulations is too high, that the societal benefits do not justify the investment, or that job losses will result, a review of past regulations reveals just the opposite. Historically, compliance costs have been less and benefits greater than industry predictions, and regulation typically poses little challenge to economic competitiveness.
Recent rule-making, including regulations that curb carbon emissions and foster clean energy investments, are facing opposition from utilities. As public comments on these proposed rules are reviewed, it is instructive to look back at industry projections and compare them to the documented impacts and benefits of previous regulatory measures. The following table and case studies demonstrate a clear pattern among corporate and trade association opponents of overestimating the costs of regulation in their economic data.1
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The benefits of regulation
Increases consumer surplus, since goods and services are provided at lower
prices
Encourages firms to meet minimum quality targets, and results in products
which are generally safe
Helps to improve the quality of life for consumers and employees
If regulation is harmonised, there can be fair rules for all businesses
The flexibility of labour markets in the UK has resulted in lower levels of
unemployment and more job creation
The costs of regulation
Regulation could increase the costs of firms and mean that it is more difficult
to do business. For example, firms are likely to face higher costs if they have
to comply with laws ensuring safer working environments for employees. It is
also more expensive for firms to employ workers if they have to pay a
minimum wage.
If firms cannot collude, then their ability to increase their market power is
limited. This could mean firms have to compete on price, which lowers their
potential profits.
