A Case Against Product Regulation
By Sean Gabb
There is currently much protest in the British media against proposals to regulate the consumption of home electrical appliances. For example, it is claimed that washing machines and kettles use more electricity than they need, and that limits should somehow be set to their wattage.
These protests have been given a European dimension. Since they come from the European Commission, the proposals have generated headlines almost as bad as “Now Brussels wants us to wear smelly knickers.” This is a pity. According to Richard North, the same proposals have been made in America and elsewhere in the world, and they come to Britain via Brussels only so far as the European Union is the means by which global regulations are implemented in Europe. Pretending otherwise devalues the case for British withdrawal from the European Union. Still more importantly, reporting them as another scare story about Brussels moves the argument away from the principle of product regulation.
Regardless of who is making them, I deny that product regulation is necessary. Here are some brief objections:
First, it may be that modern electrical appliances need less electricity to do their job than we are in the habit of believing. If this makes appliances noticeably cheaper – either to buy or over their whole lifecycle – consumers will tend to choose them. All it needs is normal product advertising, or the urging of private advocacy groups. If, for whatever reason, people remain indifferent to noticeable savings, that is their concern. People surely have a right to waste their own money. Or, looking from a “green” point of view, every extra penny spent on boiling a kettle means one penny less to spend on petrol.
Second, it may be that the savings from lower wattage appliances are not significant at the individual level, but add up, at the collective level, to the saving of several new power stations. This is more likely to be the case, and here is an argument for what the economists call “external cost” or “market failure.” In such cases, the balance of cost and benefit to each individual produces outcomes that most individuals do not think desirable. The standard answer is regulation by the State.
On full examination, however, most alleged cases of external cost turn out to be other than they seem. Rather than a failure of unregulated markets to tend towards an optimal use of resources, they are evidence of state-imposed distortions in some other market. Here, the distortion is in the electricity market. Ever since the nationalisation of domestic gas supply in the 19th century, the ruling assumption has been that utilities should be provided through centralised networks at least underwritten by the State. This generally means that not all costs of supply are reflected in retail prices. Some of these costs – control of foreign supplies, for example – are loaded onto the people as taxpayers. Others – compulsory purchase laws for land, or privileged rights of way – are loaded onto specific property owners.
If this complex shuffling of costs were ended, it might be that a higher retail price for electricity would encourage the desired savings. Or it might be that the present system would be shown up as less efficient than some other way of generating or distributing electricity. Before pointing at one spot on the picture and crying “Market Failure!” we should try looking at the whole picture.
Third, product regulations are hardly ever made by disinterested experts. Mostly, they emerge from a dirty mix of bureaucratic sloth and ignorance, and capture of decision-making bodies by special interest groups, and outright corruption. That is how the ratios were set for automatic gear boxes in the American car market. That is how they are being set for electric light bulbs throughout the world. If products are safer or cheaper as a result, that is at best an accidental side effect of the process.
Fourth, even supposing a regulation achieves its stated purpose, it should be resisted. States rely on legitimation ideologies. Most of these ideologies include the claim that state regulation works in the public interest. Being able to show a regulation that does this is useful propaganda for a system that, as a whole, is both exploitative and inefficient.
Let me give a famous example. There is reason to believe that, had the British Government taken an active interest, during the 1840s, in telling the railway companies where to build their lines, we could have had a better network than we did in fact get. There is a continuous literature of cost benefit analyses of the burdens imposed by having two spines to connect London to the industrial cities of the North, and flowing from the largely accidental emergence of the railway gauge that we still use.
This being granted, the propaganda value of successful state direction would have offset any gains from efficiency by giving us a bigger State by 1870 than we had. The officials and the relevant interest groups would have ruthlessly used the precedent of successful regulation of the railways to justify regulating everything else.
It would be the same now. Let it be shown that cutting the consumption of vacuum cleaners from 2KW to 700W had saved the cost of building three new power stations, and that would not the end of the matter. The cry would go up for linking refrigerators to the Internet, so their temperatures could be turned up or down according to some agenda by the authorities, or for built-in motion detectors on electric lights to turn them off in probably empty rooms. Where regulation by the State is concerned, nothing ever ends in itself. Everything that works is made a precedent for something else. Anything that fails becomes an argument for something else.
In summary, governments impose greater costs on a country than washing machines and kettles that may use up more electricity than they technically require. State failure is more pervasive than market failure. This, not European scare stories, should be the case against the proposed regulations.
Sean Gabb is Director of the Libertarian Alliance and, writing as Richard Blake, the author of six historical novels published by Hodder & Stoughton. His latest novel, The Break, has been nominated for the 2015 Prometheus Award.