Tuesday, April 20, 2010

Sometimes Even Regulators Need Competition

The floor of the New York Stock Exchange.Image via Wikipedia

This morning from a Wall Street Journal article entitled Economy of Lies:
"When government and business collude, it's called crony capitalism. Expect more of this from the financial reforms contemplated in Washington."
When something is regulated by the government, the nature of that regulation is subject to being influenced by the regulated.
If the regulator itself had competition and participation in the regulatory scheme was voluntary, there would be real pressure to honestly regulate.
The government could, instead of regulating companies itself, manage a system of competing regulatory regimes and let people decide which one they trust.
There could be a "Good Housekeeping Seal of Approval" for accounting competing with FASB, companies could pick one and then publish to investors which one they adhere to.
If investors find that they are consistently burned by companies governed by FASB, they would start to favor companies governed by the alternative.
There would be real pressure to perform honestly over the longterm that a monopoly is not subjected to.
I work in technology and we have all sorts of competing standards that live and die by how good the results are. Competition is a good thing and we need more of it, especially in government.
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