Regulatory Bodies: Hurting Growth And Investment

1. Regulation is Necessary but Complex

Markets thrive when practices are encoded into rules and regulations. The common myth in Pakistan seems to be that markets need to be checked and controlled, implying that regulation is to prevent market development. Indeed, markets do not thrive without good regulations. A large amount of time is wasted in the “government or markets” debate when the evidence clearly shows that government regulation is required to fuel market growth.

Audiences are aware that a good game is underpinned by good rules and fair umpiring. Markets are similar: they thrive with innovation and competition when the regulators are well-informed and can define a fair set of rules for good play. Left to their own devices, markets will ultimately fail (economically, environmentally, or through other means), and so regulations are necessary to allow markets to reach their full potential.

What regulations do:

• Allow free entry into the game under well-known, preannounced rules that facilitate entry. 
• Allow seamless, transparent, and costless financial transactions at a fast pace in a fashion as near to an auction as possible.
• Provide full information to all existing and potential participants on bids, offers, and transactions.

Rules should be flexible enough to allow innovation, but not to let people hold information or cheat other players in any way. The regulatory agency’s job is to continuously monitor and evaluate rules and the game with an intent to ensure that the play improves. Finally, as in all games, the regulator must not be a player.

As economic theory and evidence have shown, competition is necessary to

1. increase productivity

2. Deal with the unexpected

3. Deliver products at lower prices

 
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