How regulation fails us

With all these cries for more regulation, people should pause for thought over these words from the IEA:

Without wishing to trivialise the former, there are eerie similarities between the tragic case of Baby P and the failure of Northern Rock. In the banking sector, the FSA, which has virtually unlimited regulatory powers, uses extraordinarily detailed rulebooks in order to seek the needle of abuse in the great haystack of financial transactions. Meanwhile, the obvious was missed and nobody understood how to use relevant powers to achieve important objectives at the crucial time. In the case of Baby P, the Every Child Matters agenda has everybody monitoring everybody else looking for the needle of minor mistreatment in the great haystack of child-adult relationships. Once again the obvious is missed and the authorities are paralysed by indecision at the very point when they should take some action.

In both cases, in various ways, the free institutions of civil society, which should have primary responsibility in monitoring economic and social relationships, have become subservient to statutory authorities whose attempts at perfecting society and the economy through ever-more detailed regulation are failing disastrously. Indeed, this is a basic Hayekian situation. The knowledge that is needed to regulate private behaviour is naturally dispersed and cannot be centralised in regulatory institutions that lie outside the market and civil society. If the state stuck to dealing with criminal behaviour it might make a better fist of it.