Deregulation, Trump and Being Careful What You Ask For!


Pittsburgh: One reason regulations were developed.

Regulation: A rule or directive enforced by an authority.

Trump has started rolling back regulation because proponents argue regulation costs jobs. Like most things it’s never really so simple e.g. rolling back the Clean Water Provisions allowing Kentucky coal miners to pollute streams and water tables impacts negatively on the communities the miners live in and those downstream. Many miners need the work and if the job bump happens then they and other members of the community will also need to endure the negative impacts, which will come later. It is also likely to see lower standards in any new mines and that comes with a hefty public cost – refer to Mining is Transient.  In the end, the mining community will still need to face the problem that the amount of coal mined will reduce, and the number of jobs will reduce.

Why regulations?: Business doesn’t generally like regulations. And it’s true there is a history of bad, outdated and poorly implemented regulations that do need reform. There are also good, well structured and implemented regulations that act to protect us and that includes business.

Regulations are generally assumed to be negative for business and a cost and (in the case of the USA particularly) they can be presented as unnecessary government interference/intrusion. The exceptions are when regulations help maintain a business’s competitive position e.g. stopping or limiting others entering their market. Then a business will love regulations. Business leaders don’t see it as their job to remind people why many regulations were generated in the first place. Clean water and antipollution regulations came about because enterprises polluted rivers to the point of killing them and polluted air to the point of choking their citizens (see Beijing now).  Banking regulations that impose solvency levels, transparency and disclosures by Banks were because of poor lending practices, misrepresentation of risks and events like the Sub-Prime Loans crisis triggering the GFC. In many examples, bad regulatory regimes transferred costs and risks from the business to the consumer (higher costs), the public (bank bailouts) and even to other businesses (sold packages of bad loans to other banks as investment instruments) causing a domino effect.

The Pendulum Swings: The problem for consumers and societies (governments) is not a simple case of too much regulation and getting rid of it but to get the right regulations for the industry and the times. Whatever regulation is put in place, even if ideal at the time of implementation, will immediately start into decline.  (In reality, regulatory frameworks are often compromised before the regulations are even law, the corporate lobbyists will be seeking conditions that suit them, threatening no new investment and jobs etcetera.)  That is, as soon as a good or decent set of regulations exist, someone will begin the process of getting around them. They will then get away with any contrivances for as long as possible – think telco contracts and marketing or insurance. In Australia that could be until either the under-resourced ACCC or the ABC Four Corners get around to checking them out. This will nearly always be too late and some significant damage will have been done. There will be calls for regulation.

Short-Term Speculation: The Dow Jones Index has been increasing on speculation that Trump will bring about deregulation (and tax cuts). The expected effect is a bump in profitability. Investors socialized to the rhetoric of deregulation are less likely to concern themselves with the potential increase in public liabilities and risk associated with that deregulation or the court cases that might ensue. These topics will be the subject of documentaries, inquiries and court cases down the track and ironically a population wondering why things have gone backward. There will be calls for more regulation.

The Transfer of Responsibility: Expect that many communities will not want to go backward and that as Trump unwinds regulatory frameworks there will be attempts to impose new regulations by different levels of government. This is not dissimilar to when the US Congress blocked energy policies related to climate change. States simply took up the job. The difficulty is then that energy policy becomes a bit of a mess across the country. This has also happened in Australia albeit with its own flavor. Energy policy is a mess, there are market failures (most evident in South Australia but coming to other states – not South Australia’s fault) and there are some players who are set to exploit the situation, particularly the gas companies.

In summary, expect:

Reregulation emerging at different levels of government;

A shift in long-term liabilities to the public – health and environmental;

A short delay in having to deal with more structural issues e.g. declining use of coal;

A temporary bump in the stock-market;

Companies to exploit weak regulatory environments;

A lot of unintended consequences that will be the subject of future public inquiries, documentaries, and court cases.


Leave a comment

Filed under General Business

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.