We live in a ban economy

Estonia’s biggest daily newspaper Postimees published yesterday (July 24th 2012) my opinion piece Me elame keelumajanduses (We Live in a Ban Economy). Here is its translation by author.

Mikk Salu’s recent article about the consequences of regulations was most welcome because as ordinary consumers we might not notice these negative consequences.

Although entrepreneurs encounter absurd and restricting regulations on a daily basis, consumers rarely hear about those because complaining is bad for business. Entrepreneurs are only successful if they make lives of the consumers better.

When buying service or product, the customers don’t want to hear about entrepreneur complaining why she is unable to fulfill all of the customer’s needs.

Businessmen, show us the cost of bureaucracy!

But this is exactly what more courageous businessmen should do – to display in their store or point of service signs such as these: no smoked ham, banned by regulations; this couch is 5% more expensive because we have to fill out insane amount of reports; to get fresh and cheap fish, you need to buy it from the boat at the harbor; etc.

The cause of these troubles is Utopian thinking that we will achieve the Western-European level of wealth and quality of life if we have the same regulations as in Belgium or Germany.

EU regulations are often inspired by conditions in Western Europe, but their wealth is not due to regulations but because of capital accumulated over many decades.

To apply these rules to Estonia is absurd – at best they describe current best practices in wealthy countries, but do not work in poorer countries such as Estonia.

They are of no benefit in Estonia, where they set bar too high for small businesses and neither in richer countries, where they codify status quo and make further economic development difficult, if not impossible.

Eurobans make it hard for Estonia to grow rich

Our problem is not that we have too little regulations but that we have (relatively) too little wealth i.e. capital.

EU regulations will not make us as wealthy as Western European countries, instead they stop us from escaping the Eastern European poverty. Instead of better living conditions (every small rural store must have high-tech kitchens!) it only makes our conditions worse (rural stores will be closed).

This is confirmed by the suffering of small businesses and poorer citizens.

Bigger companies might even be ok with regulations as they squeeze out of the market their smaller competitors, who might offer a competitive product but can’t afford production facilities that satisfy the bureaucrats.

Also the upper-middle class person in Tallinn might not notice how regulation strangles life in Estonia because he is almost living in the ideal world of euroregulations – buys his food from supermarket, lives in a new apartment and is entertained at a modern cinema.

Eurorules are made worse by our own “enterprising” bureaucrats when they adopt EU directives and add their own contributions – already restricting rules are made even more strict so that local bureaucrat’s toil and effort doesn’t go unnoticed.

The power of “forgotten” rules

With the growth of regulations we are in some ways moving back in time. In soviet times you could buy any car, if you had permit to do so. Nowadays you can produce any kind of ham, if you are doing it in a way that is agreeable to bureaucrats.

The economy of EU is not a command economy, more appropriate term would be ban economy. No unauthorized signs by the lonely dead-end road, no sale of ham smoked at home, no crossing of border with gas tank full, no using of florescent light bulbs, no sale of non-bottled beer and so on and on.

Luckily the state does not have resources to enforce all of the regulations and some of these are absurd enough so that even public servants understand that enforcing such rules benefit no one. But such submerged rules are even worse than the ones that are actively enforced.

“Forgotten” rules can be used against troublesome citizens/entrepreneurs or once in a while make a public spectacle of “order” being enforced. The latter is especially useful when really important rules are broken at higher levels and public’s attention needs to be diverted.

Besides making it hard to improve the living standard ban economy undermines the respect for law. Only those who ignore the rules to a lesser or bigger extent can truly be successful. While upstanding, law-abiding citizens are chained down with regulations the freedom of action is left to audacious entrepreneurs and just plain criminals.

Only by significantly lessening the regulatory burden can we legalize the reality we live in and make better tomorrow a possibility.

“Progress is precisely that which the rules and regulations did not foresee; it is necessarily outside the field of bureaucratic activities.” Ludwig von Mises, Bureaucracy, 1944.