But Don’t Businesses Need to be ‘Regulated’?

by | Jul 24, 2009

In contrast with proper laws, regulations (which are also called ‘laws' to package-deal them with proper laws) do not protect individual rights.

Laissez-faire capitalism calls for a separation of state and economy, without regulation of private sector businesses by government.  But don’t businesses need to be regulated by governments to protect people’s individual rights?

The answer is: no, they don’t.

But then, if businesses are not regulated, what would stop them from rampantly making dangerous products, defrauding consumers, breaching contracts and committing (and getting away with) other injurious actions?

The answer is: not regulations, but rather laws – properly formulated, to protect the individual rights of everyone.  As the foregoing makes clear, the fundamental distinction is one between the proper concept of laws, and the concept of regulations.

Properly constituted, laws are binding rules designed to protect individual rights.  Philosophically speaking, man has four basic rights: those to life, liberty, property and the pursuit of happiness.  A right to life means man can choose to live if he wants; he does not have an obligation to fall on his sword for anyone else if he does not want to.  A right to liberty means man has the freedom to take those actions that he must to live.  A right to property means he has control over the use and disposal of the material values he rightfully owns.  And the right to the pursuit of happiness means he can decide for himself what will make him happy and then pursue it.

Because man has rights, he is entitled to be free from other people violating these rights by starting, or initiating, physical force against him. The most obvious form of force is direct physical agency like beating or shooting someone (a violation of the right to life), kidnapping or wrongly incarcerating him (a violation of the right to liberty), or stealing his property (a violation of the right to property).  (See Leonard Peikoff: Objectivism: The Philosophy of Ayn Rand, New York: Penguin, 1991, p. 310.)  Credible threats to do such things to another person are also considered force, because they have the same effect as the actual acts themselves in that they cause someone to give up his rights and obey the force wielder.  Deception, such as through acts of fraud or defamation, is also a form of force.

To protect rights to life, liberty, property, and the pursuit of happiness, governments pass laws banning the initiation of physical force against other people.  Today all developed countries have similar laws that do this, banning negligence; assault and battery; homicide; false imprisonment; theft; fraud and misrepresentation; defamation; trespassing on others’ property; and breach of contract.   Although there are differences from country to country, these rules form the basis for the codes that protect individual rights worldwide.  These laws may be civil laws, resulting in the awarding of monetary damages to compensate a victim upon a finding of liability of the accused; or they may be criminal laws, resulting in fines, incarceration for long periods, or even death to the accused upon a finding of guilt.

In contrast with proper laws, regulations (which are also called ‘laws’ to package-deal them with proper laws) do not protect individual rights.

Rather, they order a business to follow certain procedures when conducting their affairs.  For example, some regulations may tell businesses how to value their assets when doing their accounting.  Other regulations may tell businesses how to design mechanical devices or what fuel mileage the cars they produce must get.  Still others may order them to use certain materials when making clothing or specify procedures to be followed when making food products.  Still others may tell businesses how securities are to be bought and sold.  Today there are a myriad of regulations controlling almost all aspects of commerce.

Governments justify the passage of regulations on the grounds that they are necessary to protect the “general welfare” or the “public interest” by specifying procedures that ban dangerous products and deceptive trade practices.  And to many people, this sounds credible and regulations seem like a good idea.  However, the truth is that regulations are not made by anyone who knows how to keep people safe other than by banning the initiation of physical force.  There is no special governmental “know-how” that justifies bureaucrats coercively micromanaging others’ lives, regulating businesses or making products safer or better or whatever with “governmental oversight”.  Governments, for example, do not know how to build cars or trade securities or make food or clothing or anything else better than the private sector companies who make these things know how to do them.  For this reason, regulations do not make businesses more efficient or their products safer or of better quality.  All regulations do is cause businesses to adopt inferior procedures, destroying their profitability and success at producing quality values thereby.

If regulations do not protect individual rights or make businesses’ products safer or otherwise better, then why are they passed – and why do they proliferate?  The truth is that  regulations allow governments to effectively take control of businesses, along with their revenues and productive talent thereby.  The justification for doing so is the ethics of altruism – more specifically, that private businesses do not have a moral right to exist for their own sake, by governing their own affairs and generating profits for their owners.  Instead, businessmen are morally obligated to live for the sake of, and therefore use their productive talents for the sake of, some entity other than themselves and their business entities.  The entity may be God, the state, or “society” – with, of course, the government doing the regulating as God’s, the state’s, or “society”‘s de facto spokesman.

In a capitalist society there is no justification for regulations.  If a business negligently, knowingly, intentionally or recklessly acts in a way that violates others’ rights, it should be prosecuted and held accountable; it should not be ‘regulated’.  For example, if a car company creates or markets unsafe models that cause injury or death to others or their property, such as the Ford Pinto during the 1970’s, the solution is to convict and imprison the officers and engineers who knowingly approved the dangerous design and levy heavy fines against the company; it is not to start telling all car companies how to design their gas tanks or chassis or engine blocks or whatever.  If a CEO of a major corporation directs the accountants to “cook the books” by greatly overvaluing assets and causes the company’s bankruptcy, as was done at Enron Corporation, the solution is to prosecute the CEO and the accountants for fraud; it is not to start specifying how all companies are to conduct their accounting procedures (as the American Federal Government did with the Sarbanes-Oxley Act).

As for deterring future violations of rights by others, whether they be businesses or individuals, this will be accomplished by holding the violators of rights accountable for their actions.  In this manner inferior and dangerous business practices will be abandoned, and be replaced with safer and better ones over time.

In sum, businesses (like individuals) should be held accountable for violating others’ rights – but no, they should not be ‘regulated’.

Mr. Willenski is an attorney in South Florida. He has also lived in Hertfordshire, England.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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