[Market Economy Guide] The Paradox of Regulation

All regulations begin with good intentions and plausible justifications,

but instead they often bring bad results, such as side effects and abuses.

A turtle is walking along at a very slow pace. Far behind it, a man starts running to catch up with the turtle ahead of him. But the man can never catch the turtle. The turtle is always just a little bit ahead of the man.

Zeno’s Paradox

To explain it simply, the man can run 100 times faster than the turtle. At the start, the turtle is 100 meters ahead of the man, and by the time the man has run 100 meters, the turtle has moved 1 meter farther ahead. When the man runs 1 more meter, the turtle has in the meantime moved 0.01 meter ahead. In this way, whenever the man reaches the turtle’s previous position, the turtle is still a little farther in front. Therefore, the man can never catch the turtle. This is the “Achilles and the Tortoise” paradox, one of the “Zeno’s paradoxes” proposed by Zeno of Elea (c. 490 BC–c. 430 BC).

A paradox may sound plausible at first glance, but when examined carefully, it contains contradictions and errors. The “Achilles and the Tortoise” paradox is clearly wrong. If the man and the turtle move at different speeds, that means they take different amounts of time to cover the same distance. As the distance between them narrows, the time it takes for the man to catch up to the turtle becomes shorter and shorter. And at the very moment that time reaches 0 seconds, the man overtakes the turtle and runs ahead. In this way, even arguments that sound convincing at first may contain logical fallacies. What matters is the ability to see through the truth without falling into such errors.

Prohibition and the Department Store Shuttle Bus Regulation

The same is true of regulation. Regulation always comes with a justification. Whatever the reality may be, every regulation begins with good intentions. The problem is that no matter how good the intention, it is rarely applied in reality exactly as intended. More often than not, it is distorted and abused. When a regulation that began with good intentions instead produces side effects and harmful consequences, that is precisely the paradox of regulation.

A representative example is America’s Prohibition in the past. Enacted in 1919, Prohibition regulated the brewing, sale, transportation, export, and import of alcoholic beverages. Its stated purpose was to reduce alcoholism and alcohol-related crime. But once Prohibition was enforced, all kinds of loopholes and criminal activity flourished, contrary to its intent. Underground organizations emerged to manufacture and distribute illegal alcohol, and many speakeasies operated unlawfully. Even more shocking, people died because of Prohibition. As alcohol became harder to obtain, some people drank industrial methyl alcohol instead, and some of them lost their lives. In the end, in 1933, America’s Prohibition was repealed after a long and painful struggle.

In Korea, a good example is the “department store shuttle bus regulation,” which took effect in 2001. Its stated purpose at the time was to “protect nearby traditional markets and small merchants and promote the use of public transportation.” The intention sounded plausible. But the outcome was entirely different from the original goal. Sales at nearby traditional markets showed little difference from before the regulation, while more customers chose to drive rather than use public transportation, worsening traffic congestion around department stores. The original purpose was not achieved; instead, the regulation merely created the side effect of making things more inconvenient for department store customers.

The Childcare Fee Cap

The same was true of the childcare fee cap, which was enacted in the name of guaranteeing the quality of childcare. Instead, did it not lower the quality of childcare, infringe on young children’s right to receive high-quality education, and provoke frustration and complaints among parents? Likewise, regulations intended to protect non-regular workers or minimum wage regulations have sometimes instead taken jobs away from non-regular and low-wage workers.

Most regulations are created in the name of good intentions. But intentions are not everything, nor can they be a cure-all. More often, they end up damaging even the beneficial functions already operating in society and bringing about worse results. In fact, have not many regulations unintentionally become major causes of the expansion of the underground economy and of corruption?

Rather than focusing on control through regulation, what matters above all is to first create more efficient and self-sustaining systems. This is the only way the government can escape the paradox of regulation.

■ Please remember

All regulations begin with good intentions. The problem is that no matter how good the intention, it is rarely applied in reality exactly as intended. More often than not, it is distorted and abused. When a regulation that began with good intentions instead produces side effects and harmful consequences, that is precisely the paradox of regulation.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 규제의 역설

Author: Sung-no Choi

Date: 2020-07-13

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=7&idx=22916