The scope for intervention by Irish policymakers seems to be diminishing at pace. European Union constrictions on the government's freedom to act have been widely felt. Can regulation, though, be restrictive in itself to the workings of the market? This essay will attempt to assess this issue by focusing on regulation and intergovernmental co-operation. Thus, while discussing the tradeoffs involved in regulatory control, this paper will concentrate on its function as a consumer safeguard and 'corrector' of market imperfections. Then one will discuss the issue of government sovereignty in Europe, of which recent events may imply paradoxically a transfer of power to the marketplace. One shall conclude by acknowledging the important, if somewhat limited, role governments have in the economy.
In the height of economic lethargy over the last four years in Japan, those lamenting the burden of government regulation deserve some credibility. With business costs approaching the world's highest one begins to see the reason. Regulation is, in some respects, a tool that confers control without the market bargaining chip, money. However, it might better be seen as a transferred expense, ask any Japanese businessman. Alternatively, it could be seen as a deferred expense when the need to deregulate and placate interest groups affected becomes imperative, ask any Japanese policymaker. Depending on the scope of its influence, it acts as a counter balance to the economic players in the marketplace, but is it really so bad?
While many hail the benefits of consumer sovereignty, and a producer that serves the needs of the customer, the increase in consumer protective legislation seems to suggest our joy should be qualified. On the one hand, this would seem to refute the role of the consumer as the best judge of his/her welfare and as an autonomous player in the marketplace. However, in one sense, consumer protection is the very safeguard of consumer sovereignty. If we take the case where a producer 'generates' consumer needs through effective marketing only to ill-satisfy them, we must ask ourselves, who is directing who? If this seems far fetched, perhaps then we should look at the recent Package Holidays and Travel Trade Act (1995). The legislation involved is designed to ensure that what appears in the holiday brochure coincides with reality. In this instance, the government is forced to act as a check on the producer. It corrects a market imperfection, which relates to the next point in this essay, by restoring consumer direction in the marketplace.
If a market is to be free, ideally it should be independent of the players in the market. Its power should be collective, owned by its players but controlled by nobody. This can be justified, most obviously on efficiency grounds. Take the case of a monopoly, by producing less than society desires at a price above the market clearing level, it leads to a wastage of resources and a producer rather than a consumer directed market. On grounds of equity, the market is no longer free, since entry is likely to be impeded by technological advantage or scale economies in production. In this light, the intervention by employment minister, Richard Bruton, into the purchase by Independent Newspapers of a large stake in the Irish Press group, is hardly surprising. The concern here being that Independent Newspapers would hold a dominant position in the Irish media market, dispelling the idea of market sovereignty to the detriment of the consumer and other market producers. Of course, a cynical view of this might be that a politician depends greatly on his/her image portrayed by the media. Thus, by controlling monopoly power here it might reduce the chances of a single, perhaps poor, image being portrayed.
From issues of market and consumer sovereignty we can now move to consider the fading notion of government sovereignty in contemporary Europe. Concerns raised over the movement to a single European currency have added fuel to the debate. The rules laid down in the Maastricht treaty have placed a considerable constraint on the scope of government policy, both in fiscal and monetary terms by necessitating a limiting of the government deficit and holding inflation at a low level. Arguably, this is a positive aspect in a world where policy is directed by elected officials, dependent on popular approval in the short and medium term. However, in committing itself to fiscal and monetary austerity, the government loses some power to stabilise the economy in times of recession. Secondly, by ceding control of exchange rates we are handing over the possibility of a competitive currency devaluation, especially in the light of a weakened sterling. Effectively, one could argue that a united Europe involves a transfer of power from national governments to the marketplace, with economic players acting as a more potent balance to elected officials. Economic expediency and the movement towards a greater competitive ideal was vividly illustrated by the furore created at European level in response to proposals of a government injection of cash into Irish Steel. The days of an uncompetitive government subsidiary sustaining market share appear numbered.
Conclusion
The government's role appears to lie in making incremental corrections to market faults while ceding control on a wider level over the direction that very market takes. While we must qualify regulation by taking account of corporate costs, the role of economic forces cannot go unchecked (as Independent Newspapers learned). We should also qualify our enthusiasm for the drive towards European Union by the potential isolation it could create in the event of an economic downturn or a loss of competitiveness. We must expect a certain trade-off in the weakening of government powers, of what gravity, unfortunately time will have to tell.
Bibliography
O'Hagan, J. W. (1994) The Economy of Ireland, Gill & Macmillan, London
Irish Independent, Oct. 5th,1995
Financial Times, Sept. 25th, 1995