The View | Why Hong Kong must avoid the tyranny of regulation

Although Milton Friedman was the most famous advocate of free market ideas in the late 20th century, it was his colleague, Nobel Prize-winning economist George Stigler of the University of Chicago, who developed the theoretical arguments against government intervention in favour of free and unfettered markets.

Stigler questioned why regulations exist. The standard economic arguments are that they either correct market failures (for example, externalities like pollution) or pursue other policy goals (like income equality) in the public interest.

The premise is that government is motivated to do public good, and it can do so in an effective and cost-efficient manner.

But Stigler used an evidence-based approach to argue that usually regulations are designed to benefit industries rather than the customers they serve.

He attributed this to the fact that regulatory processes are subject to consultation and vulnerable to stakeholder influence. Stakeholders who have large stakes and permanent interests in the industry are more likely to end up with the most influence.

Stigler found that most regulations raise barriers to industry entry (for example, through licensing, quotas, and price control), under the guise of maintaining market orderliness and assuring standards of quality and performance. He argued that the main result of such barriers is to limit competition, especially from new entrants, rather than to protect customers.