Thesis - What is the proper role for our government in regulating businesses?

Introduction

Some people complain that government regulation of the economy is too little? too late. Others scoff that the U.S. economy is no free market at all? with so much regulation. Some of the most enduring debates of U.S. economic history focus on the role of government. Emphasis on private ownership jibes with U.S. beliefs about personal freedom. Since independence? Americans have most often sought to limit government's authority over individuals? including its role in the economic realm. And most Americans have believed that private ownership of business is more likely than government ownership to achieve the best economic outcomes. (James? 1996? 782-83)

Analysis

GLOBAL financial markers are currently perceived to be in crisis. Debate over regulatory reform in the financial sector has? consequently? assumed national prominence. Institutionalists have traditionally argued for government intervention when the market fails to produce a socially desirable outcome. While these arguments cannot be denied? it may be suggested that the technological change inherent in a financial innovation can? in fact? promote a progressive institutional change that enhances social welfare. The problems of inefficiency or inequity in the financial sector may? consequently? be ameliorated by technological change. This implies that government regulatory intervention may not always be necessary in the event of a failure of the market to provide an optimum outcome. Governance is that broad field of economics which concern the design of institutions through which exchange is conducted. (James? 1996? 782-83)

The economic theory of regulation? a subfield of governance? most often examines how collective action by individuals? through the auspices of government? affects the incentives of participants in private markets. The theory of governance? and area of commonality between certain aspects of institutional and neoclassical economics? also examines how economic institutions evolve? both through technological innovations and bargaining between coalitions of individuals whose welfare depends on the pattern of trade within these institutions. Regulation of financial markets is best examined within this context. Institutional structure? which includes legal restrictions? traditional practices? and regulatory policy? constitutes the technology of exchange.

Alternative structures may? at any particular time? vary widely in terms of their economic efficiency. (ROBERT? 1991? 137-47)

The institutional approach to regulation more explicitly considers broader issues of governance and institutions as the technology of exchange. The basic postulates of the institutionalist approach to regulation are:

The need for government intervention exists because industrialised societies give rise to concentration of power? increased uncertainty? performance failures? uncompensated costs? and adverse distributional effects.\

Regulation must endeavour to promote public interest or social values that cannot be derived exclusively from monetary or market-oriented measures.

When properly applied? regulation seeks to promote higher levels of efficiency and greater individual choice. Regulation can convert emergent values into allocative decisions that better reflect social wants.

Strategies of actors in the regulatory process can have a significant impact on the outcome. (ROBERT? 1991? 137-47)

Since the evolutionary process makes any set of goals and methods provisional and intermediary? it follows that the form of regulatory intervention may change over ...