PRODUCCIÓN Y CRONOLOGÍA
I. C/ Javier de Burgos
As we previously noted, trade promotes social gain — a larger output and more income would then be achievable. When government limits cooperation through trade, they stifle the economic progress.
Governments stifle trade in various ways:
First: Many countries impose regulations that limit entry into various busi-nesses and occupations. In those countries, if you want to start a business or provide a service, you have to acquire a license, fill out forms, get permission from different bureaus, show that you are qualified, indicate that you have sufficient financing, and meet various other regulatory tests.
Some officials may refuse your application unless you are willing to pay What Everyone Should Know About Wealth and Prosperity
Consumers’ Losses by Entry Restriction
Pakistan car manufacturing industry has several examples of the neg-ative role of the regulations. The investors in car manufacturing industry were provided sovereign guarantees by the government of Pakistan.
According to this arrangement, government promised not to allow duty free import of reconditioned cars into the country for a certain period.
This policy provided an unlevel playing field to the local car manufac-turers who have oligopolistic structure in the economy. They enjoyed their oligopoly at the cost of consumers. Pakistani buyers are discour-aged to import cars from abroad and they have to pay high prices and to some extent have to compromise on quality. This type of losses are common in case of market imperfections. The free market or a level playing field for the competition is the only solution.
a bribe or contribute to their political coffers. Often well-established and politically influential businesses that you would be competing against can successfully oppose your applications.
Hernando De Soto, in his revealing book The Mystery of Capital, reports that in Lima, Peru, it took 289 days for a term of people working six hours a day to meet the regulations required to legally open a small business producing garments. (In an earlier book, The Other Path, he revealed that along the way, ten bribes were solicited and it was necessary to pay two of the requested bribes in order to get permissions to operate legally.) In many cases if you are financed with foreign capital you face an ad-ditional maze of regulations. Policies of this type reduce the freedom of exchanging by stifling business competition, encouraging political cor-ruption, and driving decent people into the underground (or what De Soto calls the “informal”) economy.
Second: Regulations that substitute political authority for the rule of law and freedom of contract will tend to undermine gains from trade. Several countries make habit of adopting high-sounding laws that grant political administrator’s substantial discretionary authority. For example, in the mid-1980’s customs officials in Guatemala were permitted to waive tariffs if they thought that doing so was in the ”national interest”. Such legislation is an open invitation for government officials to solicit bribes. It creates
Shortage Creates Black Markets
Another notable observation in the car industry is the creation of black markets in the urban areas. If someone wants to buy a car, it is not possible to pay the price and get the car immediately. Because of con-trolled supply, he has to wait for the delivery from the factory. However, he can get a car immediately after paying extra money (PKR 30,000 to 100,000) depending on the model and make of the car. The con-trolled supply always creates a black market, where investors acquire the stock for reselling at a higher price.
What Everyone Should Know About Wealth and Prosperity
regulatory uncertainty and makes business activity more costly and less attractive, particularly for honest people. The law needs to be precise.
Unambiguous and non discriminatory. If it is not, it will be a major road-block to gains from trade.
Regulatory roadblock are costly to the economy and to most individuals, but regulations can help some businesses by restricting competitors. Be-cause such regulations are lucrative to the few who benefit, they pose an additional cost: business, labour and other special-interest groups will seek advantage for their, constituents by trying to influence the political process. Some will lobby politicians and regulators to establish or increase these roadblocks, while others (those most severely harmed) will lobby to diminish their effects. Lobbing consumes the time and efforts of highly skilled individuals, plus costs of travel, entertainment, publishing, adver-tising, and other activities. A report conducted by university researchers Mark Crain and Thomas Hopkins for the US government estimates the cost of resources devoted to lobbing for and against regulatory change at USD 348 billion for the year 2000.
Many countries have imposed regulations that interfere with and under-mine the use of contracts or voluntary agreements to deal with various issues. This has been particularly true in the labour market. Minimum-wage legislation, forcing collective bargaining agreements on non con-senting parties, and employee dismissal regulations for contractual agreements. A number of European countries require employers who want to reduce the size of their work force to (1) obtain permission from political authorities, (2) notify the dismissed employees months in ad-vance, and (3) continue paying the dismissed employees for several more months.
These regulations may appear to be in the interests of workers, but the secondary effects must be considered. Regulations that make it costly to dismiss workers also make it costly to hire them; employers will be re-luctant to take on additional workers because of the costs they will have
to incur. As a result the growth of employment in countries that impose extensive labour market regulations will be stifled. It will be very difficult for new labour force entrants to find jobs; and high unemployment rates, particularly for workers under the age of thirty five, will result. Indeed, the restrictive labour market regulations of most western European countries are the primary reason why their unemployment rates have been 4 or 5 percentage points higher than in the Unites States during the last couple of decades.
Third: The imposition of price controls will also stifle trade. Governments sometimes set prices above the market level; for example, they may require a minimum price for cigarette or alcoholic beverages. These prices lead buyers to purchase fewer units than they otherwise would. Government also sets prices lower than the market level, as in cases of apartment rent controls and regulated electric power rates. These prices make supplies unwilling to produce enough. In terms of units produced and sold, it makes little difference whether price controls push prices up or force them down; both will reduce the volume of trade and the gains from production and exchange. Exchange is productive; it helps us get more from the available resources. Regulatory policies that force trade to pass through various political roadblocks are almost always counterproductive. A coun-try cannot realise its full potential unless restrictions that limit trade and increase the cost of doing business are kept to minimum. The market is the best regulator.
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