Thursday, December 22, 2011

Good and bad regulations

Some people have the idea that all regulations are bad - they add to cost and cause trouble for the ordinary people. This is the propaganda of some people, most notably the Republican politicians in America - they argue that Government is bad and should be kept as small as possible.

If we study the issues carefully, we will realize that the propaganda is flawed. What will happen to our society, if there are no laws and regulations, if every person can do what they want, if the powerful can bully the weak and get away with it, if people can cheat other people of their money?

We do need laws to identify what is acceptable and unacceptable behaviour, what is lawful and not lawful. If the Government and the law makers fail to carry out their duty, society must surely become chaotic and uncertain. People will have to take costly measures to protect their personal interest. This may be more costly, than for the measures to be taken collectively by the Government or behalf of the citizens.

Certainly, there are useless and wasteful regulations that do not add value and increase the cost and create wasteful bureaucracy. We see them all the time. The bureaucrats justify them on flimsy grounds, such as "security" and "privacy".

We should not create or continue the useless measures blindly. We should examine, from time to time, the cost and benefit of the measures, and look for more practical solutions. Even if the solution involves some risk, we may have to accept the risk, if the risk is remote and the cost of preventing it is excessive. Judgement has to be made.

I want to point out that there is a difference between good and bad regulations, and that judgement has to be made by the people in charge. It is often a balance between the cost and benefits - a need to get the facts and use the right moral values to make a decision.  It would be wrong to blindly state that all regulations are necessary, or that they are bad.

What I fear for Singapore is that the people in charge are not taking the responsibility to make the judgement, on the grounds that it can be left to the market. The unwillingness to accept responsibility, to have an open mind, to discuss with the affected people - have now become the prevailing culture in Singapore.

Please share your views on this matter.


longshot said...

Deregulation or perhaps more accurately the failure of regulation in the United States is evidently one of the root causes of the great financial crisis.

We need governmental regulation to address the positive and negative externalities that arise from the actions of different individuals and institutions.

However i disagree with you that the local government is leaving things to the market and not accepting responsibility and making their own judgement calls. Do you have any concrete examples of these?

Tan Kin Lian said...

@ bereft. If you represent the Singapore Government, feel free to contact me at I can give you many examples of the failure to do their duty.

zhummmeng said...

Look at what happened to self regulation in Singapore, the FIs bochap. Eg. Where is the top down fair dealing outcome guidelines? It is supposed to start from the CEO down to the salesmen, but the CEO is the chief salesman only interested in the sales and APIs for the company and NOT the interest of the consumers. This is where stringent regulation is required and FSA UK saw it worked for them until the banks and insurance companies don't play play. The fine is very hefty and not ticklish fine like MAS imposed.
Eg in the recent compliance lapses 3 insurers were fined but measly , the highest was only $200K. If for FSA it would have been $2 millions at least to drive home the gravity of the lapses.
Self regulation is good but the FIs cannot be trusted...both the banks and insurance companies.

rex said...

rex comments as follows,

I agree that in many cases, local regulators are sleeping on the job. There are so many examples everywhere.

I pick up the papers today and i am fed up with Carrefour's huge advertisement of 10% discount.

They explain it as follows: 5% is direct discount. After that another 5% is given on the amount which remaining after the discount, and this second 5% is given on two conditions, IF you have a certain type of credit card AND the second condition is that it is a rebate for future purchase not even a discount.

What happend to the advertising standards association or the regulator of advertisers!! You can;t add two percentage figures with different Wholes and say 5%+5% is 10%. This is confusing the public, it is cheating, no different from how Lehman bonds are sold. There are not bonds at all.

There is another example. Some banks advertise that their interest rate is 5%. When you read more you discover that it means that you put money for 5 years and each year they give you 1%, so 5 years is 5%. Horror of horrors! How did the Advertising Standards authority allow such deception!!
Interest rates are always on per annum basis, as a basic standard. How can the regulators allow such misleading advertisements which add up multiple years of interest rates.

It is because of this lack of regulation that lehman minibonds were allowed to be sold, when in fact they were not bonds at all, bonds carry a totally different meaning.

Singapore Regulators are sleeping on the job in numerous instances and just collecting salary.


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