Regulation and deregulation

TIME has shown that the ideological debate between regulation and deregulation is largely misplaced. Governments and regulators have different roles under varying market structures and circumstances. In some areas, they regulate more actively; in others, they oversee operation of market forces. Evidence and outcomes, not ideology, should determine the state’s role. In Pakistan, the formal sector is often overregulated and burdened by procedures and discretionary powers that discourage innovation, investment and technological adoption. Regulatory enforcement is weak. Quacks, unsafe buildings, counterfeit drugs, etc, escape oversight. Excessive regulation in the formal sector and lax enforcement elsewhere encourages informality. Hence, thousands of enterprises prefer to remain outside the documented economy. Had they not had to face needless constraints, many could have grown into medium-sized firms, increasing output, employment, tax revenues and efficiency, while reducing the informal economy. Why is regulation required? In a mixed public-private economy, regulation is essential to ensure fair competition and protect consumers. Until the early 2000s, the same ministry made policies, owned enterprises and regulated the sector in which those enterprises operated. Recognising the inherent conflict of interest, the government initiated reforms to separate the functions. Ministries were assigned responsibility for policy formulation, SOEs for commercial operations and independent regulators for oversight and consumer protection. The logic was simple. A private firm can’t compete fairly with an SOE if the regulating ministry also owns one of the competitors. The ministry can alter policies, provide subsidies, absorb losses, grant tax concessions or create barriers that disadvantage private firms. Hence independent regulators were set up to create a level playing field and encourage competition. Have the aims of reform been achieved 25 years later? The challenge is to regu