GM crops: let the market decide
A competitive market in private regulation is crucial to achieving better product regulation
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Should the government allow genetically modified (GM) crops? That’s the question many have tried hard to answer over the past few weeks. Public policy experts on either side of the debate have wanted to figure what is best for the farmer, citing suitable “scientific sources” to drive home their point.
Meanwhile, farmers who have every incentive to make the right choice are ignored. That is, even while it is clearly doubtful if any bureaucrat or non-governmental organization has larger stakes in the issue than farmers. Of course the farmer, as a non-technician—like anyone buying sophisticated products in the market—may often have no clue about biotechnology. This, however, is hardly reason to rest the decision on a bunch of politically-appointed “experts” or “public intellectuals” who think they know better than the market.
The problem of asymmetric information pervades the whole world, and there are completely market-driven solutions to it. In the absence of government regulation, it is often said, chaos would result. But a world free from government regulation is not one without any rules. The market evolves its own rules, which are much more efficient than government regulations. Consumer demand for goods that meet certain qualities—safety, disease resistance, long-term sustainability, etc. when it comes to GM crops—can push entrepreneurs to provide the kind of products that are desired.
Take the simple case of private Kosher certification agencies that certify foods as fit for consumption according to rules stipulated by Jewish tradition. Competition between agencies that oversee businesses producing Kosher food has led to better service and lower fees for regulatory services being offered. The American Dental Association (ADA) is another private regulatory body, setting and enforcing standards for dental products and equipment for a price. ADA was formed way back in the 19th century well before the US Food and Drug Administration was set up by the federal government.
Private auditing agencies that confirm the quality of company financial statements is another example. Agencies that do not provide quality service—along with the client company—run the risk of losing investor confidence. A public regulator, instituted on the excuse that only appointed experts can decide what is best for the investor, would remain completely aloof from such incentives. Even accounting standards, often flaunted as the creation of government regulators to bring uniformity in the market, are nothing but the product of private parties voluntarily adopting best practices over centuries.
Then, of course, there are ratings agencies playing an important role in financial markets, with their reputation among customers dependent on the quality and integrity of their services. The very first of these agencies was set up as early as the 19th century, when government regulations overlooking financial markets were almost non-existent compared to today. These are just a few examples of regulatory services of much better quality provided through private means.
In all these cases, competition between private regulators is what assures the consumer some very specific product features. This is in contrast to government regulators with no monetary incentive to provide efficient service. Much worse, these public bodies are prone to influence by interest groups, as is evident today in the battle between pro- and anti-GM lobby groups. A private market in regulatory services can no doubt satisfy farmers’ demand for appropriate GM crops much more efficiently.
However, it is not the case of free market economists that private provision of regulatory services would be perfect. Rather, the case made is that the presence of a market with competing service providers is bound to be way more efficient than any legal monopoly. Private regulators are not beyond acts of fraud, nor are government regulators, but that is where an economically efficient legal system matters.
The opportunity cost of delayed regulatory clearances is another aspect of government regulation that is often ignored in public discussion. The cost of a breakthrough medical drug that is delayed due to regulatory issues can be thousands of lives that could have otherwise been saved; and that of a delay in the entry of a production-boosting technology can run into billions of dollars.
Continuing to delude oneself that governments, like the current one whose flip-flops have corresponded with pressure exerted by each lobby group, are elected to act benevolently and provide efficient justice would only cause further economic damage and misery.
Natural Order runs every Monday, with a libertarian take on the world of economics and finance.
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