President Bush’s 2008 bail-out bill brought the almost-inevitable response from lawmakers - they tacked on extra controls in areas which had dubious links to the original problem. It seems to be a given, that once lawmakers and regulators start intervening in markets, they go too far. And the result is usually not what they intend. For example, Sarbanes-Oxley turned into a bureaucratic burden of huge cost and dubious merit. Clearly it didn’t prevent much misdoing, and only encouraged greater care by miscreants covering their tracks. It and similar regulatory burdens cost New York a large share of legitimate corporate activity, to London’s benefit. I predict that unintended consequences of similar or greater magnitude will come out of the add-ons to the bail-out bill.
The US isn’t the only country subject to this problem. I’ve seen it in both the UK and NZ, too. For example, overly-prescriptive and restrictive employment regulation intended to protect workers has been one of the factors in the widespread move to contract labour in a number of industries. The outcome for the shop floor is less employment certainty than before, not more, and not at all what the regulators envisaged. Ask any employer about who employment law most protects and the answer will be under-performing managers and senior professional staff, who take ages to fire because of the bureaucratic process required. Yet their incompetence is far more likely to cause job losses among shop floor workers. Unintended consequences again. So incompetents get rewarded to go away, by bogus redundancies and settlements. When the law encourages deceit and the counter-measures are worse than the original problem, you know the law is flawed.
There are numerous other examples of this naive belief by lawmakers and bureaucrats that prescribing processes will assure outcomes. Any good business owner or school principal knows it ain’t necessarily so. Culture, ethics, leadership behaviour, peer pressure, and “the way we do things around here” are far more powerful tools.
First posted September 25th, 2008
The US isn’t the only country subject to this problem. I’ve seen it in both the UK and NZ, too. For example, overly-prescriptive and restrictive employment regulation intended to protect workers has been one of the factors in the widespread move to contract labour in a number of industries. The outcome for the shop floor is less employment certainty than before, not more, and not at all what the regulators envisaged. Ask any employer about who employment law most protects and the answer will be under-performing managers and senior professional staff, who take ages to fire because of the bureaucratic process required. Yet their incompetence is far more likely to cause job losses among shop floor workers. Unintended consequences again. So incompetents get rewarded to go away, by bogus redundancies and settlements. When the law encourages deceit and the counter-measures are worse than the original problem, you know the law is flawed.
There are numerous other examples of this naive belief by lawmakers and bureaucrats that prescribing processes will assure outcomes. Any good business owner or school principal knows it ain’t necessarily so. Culture, ethics, leadership behaviour, peer pressure, and “the way we do things around here” are far more powerful tools.
First posted September 25th, 2008