titanic

EDITORIAL
Regulation, Kobe Beef – and the Titanic, Too
By Anthony Wile - April 14, 2012

What do Kobe Beef and the Titanic have in common? They both are the subjects of articles this week that deal with regulation.

Regulatory democracy is surely a meme of the 20th century, what we call a dominant social theme of a global power elite. These individuals work through government to pass laws and regulations that benefit them and help with the expansion of global governance.

Government is the key to a kind of new world order. And government around the world continues to grow.

The justification for big government is its ability to counteract "market failure" and ensure that private enterprise does not take advantage of the larger public. But this is surely a promotional theme rather than an evident reality.

What disciplines the market is the Invisible Hand of competition. Unfortunately, that hand is lacking when it comes to government solutions.

Because government officials and regulators are immune to competition, the solutions offered by the bureaucracy are never tempered by real-life implementation.

It is only when disaster strikes that regulations tend to be scrutinized. And usually when this occurs, regulations are found to be wanting – and then new ones are passed!

But in truth, regulation is a very ineffective way of providing "market discipline." The private sector itself is very effective at providing scrutiny of failing or corrupt businesses – if it is allowed to operate.

But the problem is that when government takes over the watchdog function, private forms of business scrutiny tend to fall away. The force of officialdom – and the modern legal system – drives them out.

Two articles appeared recently that bear out this sort of perspective. The first one is perhaps the more compelling because it deals directly with the issues I've mentioned and has caused a minor stir in this age of regulatory adulation.

It appeared in the Wall Street Journal and was entitled, "The Real Reason for the Tragedy of the Titanic." The article's official reason for appearing was that we are approaching the 100-year anniversary of the Titanic's sinking.

But the article itself was actually an important one because it used the accident to make a larger point about the inefficiency of regulation at a time when Western societies are generally engaged in generating yet more regulatory complexity.

The article explores why there were not enough lifeboats on the Titanic and concludes that the owners of the Titanic had provided enough lifeboats to satisfy the current regulatory standard but no more.

The regulators themselves were complacent and those building the Titanic were content to provide what was officially necessary rather than what might have been prudent. Regulation, one could say, had made them complacent. The article concludes as follows:

This is a distressingly common problem. Governments find it easy to implement regulations but tedious to maintain existing ones—politicians gain little political benefit from updating old laws, only from introducing new laws.

And regulated entities tend to comply with the specifics of the regulations, not with the goal of the regulations themselves. All too often, once government takes over, what was private risk management becomes regulatory compliance.

It's easy to weave the Titanic disaster into a seductive tale of hubris, social stratification and capitalist excess. But the Titanic's chroniclers tend to put their moral narrative ahead of their historical one.

At the accident's core is this reality: British regulators assumed responsibility for lifeboat numbers and then botched that responsibility. With a close reading of the evidence, it is hard not to see the Titanic disaster as a tragic example of government failure.

This article makes good points, in my view. But it is not the only one focused on regulation this week. Over at Forbes, we find an article entitled, "The Kobe Beef Lie."

The article points out that while there is a large business in the US (in particular) providing Kobe Beef, there is actually no such thing as Kobe Beef. The reason that an entire industry has taken root in the US has to do with regulation rather than reality. Here's the key point the article makes:

"How is this possible?" you ask, when you see the virtues of Kobe being touted on television food shows, by famous chefs, and on menus all over the country? A dozen burger joints in Las Vegas alone offer Kobe burgers. Google it and you will find dozens of online vendors happy to take your money and ship you very pricey steaks. Restaurant reviews in the New York Times have repeatedly praised the "Kobe beef" served at high-end Manhattan restaurants. Not an issue of any major food magazine goes by without reinforcing the great fat Kobe beef lie. So how could I possibly be right?

The answer is sadly simplistic: Despite the fact that Kobe Beef, as well as Kobe Meat and Kobe Cattle, are patented trademarks in Japan, these trademarks are neither recognized nor protected by U.S. law. As far as regulators here are concerned, Kobe Beef, unlike say Florida Orange Juice, means almost nothing (the "beef" part should still come from cows). Like the recent surge in the use of the unregulated label term "natural," it is an adjective used mainly to confuse consumers and profit from that confusion.

This matters because the reason food lovers and expense account diners want Kobe beef, and are willing to pay a huge premium for it, is because of the real Kobe's longstanding reputation for excellence. The con the US food industry is running is leading you to believe that what you are paying huge dollars for – like the $40 NYC "Kobe" burger – is somehow linked to this heritage of excellence. It's not.

Here we see, once again, that regulation has results that are far different than might have been expected. Regulatory authorities have allowed regulations to be used to create a faux-industry that likely would not otherwise exist – or certainly not in its current brazen condition.

In the modern age's hyper-regulatory environment, such distortions prosper because regulations undermine private watchdog efforts without effectively replacing them.

Ultimately, every regulation is a price fix – transferring wealth from those who create it to those who don't and may not know how to use it. Regulations, by definition, create market distortions.

The idea is that these distortions are predictable and that they will create predictable – and laudable results. But we can see in the case of Kobe Beef that they have helped create an artificial industry. In the case of the Titanic, regulations indirectly led to the deaths of some 1,500 innocents.

Regulation removes market discipline and rarely if ever works as advertised. Human action – human nature, in fact – almost guarantees that regulations will be subverted and their impact redirected.

In fact, regulations are part of a larger syndrome called "regulatory capture" in which the largest players in any industry utilize regulations to create barriers to entry and other advantageous facilities.

We write a lot about the Internet Reformation at this website – a knowledge environment being created by free-market thinking enhanced by current technologies.

We've predicted that the promotional memes of the elite – when it comes to regulation and much else – will come under increased scrutiny in the 21st century, much as traditional cultural assumptions became subject to scrutiny after the advent of the Gutenberg Press.

Such trends are hard to define, but it is a process that may be ongoing. Markets work better than government. Private sector competition is surely preferable to dysfunctional regulation.

The 20th century saw the overwhelming growth of "regulatory democracy." Hopefully, the 21st century shall moderate (or even reverse) this growth.

Posted in EDITORIAL
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