Regulations are the requirements to do business, and there are always regulations. The question is: who creates the regulations?—the market or the State.
Market-created regulations, first and foremost, are voluntary. Not only are market-created regulations voluntary, but they are also amorphous. Being voluntary and amorphous, individuals (those involved in a transaction) may interact as they see fit. This applies to businesses as large multinational corporations, to kids selling lemonade on a front yard, and their customers; if you don't like how the product is processed, thinking it is unsanitary, such as using not cleanly processed lettuce in hundreds of restaurants, or a dirty lemonade pitcher, any individual may decide to not purchase the product. However, if those concerns are addressed (and quickly addressed from decreasing market share), patronage may return. If there wasn’t enough to warrant a concern, patronage wouldn’t have stopped.
State-created regulations, first and foremost, are involuntary. What is it to blend the involuntary when mixed with the authority of the State?—the removal of choice with legal punishment and all that entails. With State-created regulations, the individuals who actually want to do business with one another are of a secondary concern to what the State will first allow. Want to get a specific style of hair braid from the only beautician who knows how to do that style (Jestina Clayton*)? Without the proper State-sanctioned license for the beautician, it’s not allowed. Want to buy that glass of lemonade?—the child didn’t get the license to sell the lemonade, so they’ve been shut-down by the threat of a fine. Patronize the license-less beautician, and fines will follow.
Market-created regulations just mean there will be no transaction unless terms have been agreed upon; if terms have not been agreed upon, then from mutual agreement, there will be no transaction from disagreed upon acceptable terms. State-created regulations mean that permissions must be sought and approved by governmental bureaucracy. If those permissions haven’t been given, to continue means instead of license fees for permission to act, there will be fines to be paid in punishment for acting without permission – refuse to pay the fines, and one goes to jail.
Let’s expand upon the aforementioned on something like wages; they can be regulated by the market, or by the State. Market-regulated wages would be dependent on the context. The market is the King of context. If there is a high demand but there were too many workers, the wages would be lower, but more would be employed. While if the demand was still high but if there were too few workers, the wages would be higher and the best would be employed. If the demand was low, then the wages could be lowered to hire some to perform the less demanded work.
State-regulated wages requires a minimum wage to be offered, and sometimes a cap on what can be offered. If there was a high demand with many people, but with the higher wage dictated by the State, then there would be fewer employed for there is still only so much that the work justifies in wages, so the fewer employees would earn some more wages, but there will be higher overall unemployment. If there was a lower demand, then an employer would skip hiring altogether for the hiring wouldn’t pay for itself, or be profitable. (Wages and prices will be another article).
Market-created regulations follow economics: an individual’s incentive mixed with limited resources. A well-funded, established businessman may splurge for a luxury work vehicle to be part of his image, while one just starting may buy a used car, emphasizing practicality. Both may be able to buy the expensive vehicle, but the recently-started businessman would decide funds would be better spent on other work expenses instead of just one car, especially primarily for image. More on context with incentives and limited resources: the family of six needs a different vehicle than a bachelor, and both have only so much to pay for a car while needing to also pay for other expenses relevant to their lives. To continue, a brooch may just be a trinket to one, but an heirloom with high subjective value to a family member. A can of SPAM may be repulsive and not worth a dime to one accustomed to caviar as they live in luxury, but that same one who stranded and starving may find the SPAM – their only source of nutrition – as worth hundreds of dollars at that time. At the same time, one who likes SPAM may not be interested in caviar at any dollar amount, until it is the only source of nutrition. Again, the market is the King of context.
State-created regulations are laws. Laws are mandates on what must be done, how, and punishments for not doing things according to law: proscriptions and prescriptions, blended. When laws are introduced into the market, aside from rights violations, such as requirements for licenses, subsidies, quotas or ‘sin’ taxes, it is artifice introduced into market. All the aforementioned false-market effects are created for a reason, to help some one, or sector. Help them do what?—get an advantage in some way: help them with something or prevent competition doing something. Before the artifice-laws were created, more were on equal footing with opportunity, but afterward, the established sets up assists (e.g. subsidies) for themselves, or barriers (e.g. licensing fees) for competitors. Through the force and manipulation of the State, regulations prop up that which isn’t worthy, while putting at a disadvantage that which is otherwise worthy. An extension of this artifice is that what the market normally would deny because it wouldn’t be practical or desired, gets a false foothold in the market, such as green energy, high-speed rail and ethanol. All of this artifice is done by ‘investment’ by the State with someone else’s (the taxpayer) money being handed out – handed out by those not directly in the transaction of the buyer or seller. (Each of these have their own market effects).
State-created regulations allow true monopolies, prevent competition and last as long as the law remains, across the area the law affects. Market-created regulations do not prevent competition, and last only as long as there isn’t a better option available in a given area. It is the difference between the post office and a grocer who may be replaced by a new grocer offering better product for better prices, if the first doesn’t improve what they offer.
Lastly, we’ll look at regulations dissuading innovation. Regulations that were designed, in part to ‘protect’ us, (also to protect the vested interest of those established in business and the State) stifle innovation. An example, if a bureaucrat decided what needed to be added in order to ensure ‘safety’ the Wright brothers never would have flown, but because they planned, worked and took their own risks, they, and with what they started enabled all of us to fly.