Investor Protection and Unprincipled Intervention? (1987)

In recent years many economists, and lawyers, especially in the USA, have become increasingly hostile to government intervention in, and regulation of, industry. The older concept that such intervention is applied as a public-service means to correct market failure is now denounced as a travesty of the facts, and as ignoring the political process whereby regulation is introduced, and made acceptable to the regulated. This process, it is claimed, usually ends up with the general customer losing out at the expense of the bureaucracy of regulators and the established firms in the regulated industry, protected from competition by the regulations themselves. That criticism extends to financial regulation: George Benston, a US economist specialising in this branch of the discipline, has written1 that with the exception of deposit insurance, most regulations [on financial services] are not useful except for those who benefit from constraints on competition. My US free-market friends would be aghast, and astonished, that a Conservative Government, supposedly pledged to the support of markets and the abolition of quangos, could have reneged so far on their principles as to establish a major new quango to impose a multiplicity of regulations on many previously completely free, and internationally successful, markets, such as the Euro-bond market and the London International Financial Futures Exchange (LIFFE).