Regulations are essential tools for ensuring that markets meet the needs of all stakeholders, not just investors. Regulations are needed to create the conditions under which society as a whole can prosper, so that healthy consumer demand can exist to support a growing economy.
Regulations and litigation complement each other in promoting responsible business practices and fair play. When injured parties have access to the courts, and violators face the sting of meaningful adverse judgments, the need for regulation is less. Conversely when regulations are stronger, well enforced, and accompanied by meaningful penalties, the need for litigation is less. Unfortunately, when regulations are weakened and at the same time litigation is impaired, for example, by restrictions on class-action suits and the use of restrictive arbitration clauses, markets cannot be effectively guided and the rights of stakeholders are not kept in balance. The economy suffers.
Good regulations tend to stimulate innovation and entrepreneurship in addition to limiting or preventing destructive forms of economic activity. For example, regulations that encourage alternative energy impede the use of fossil fuels, which reduces capital spending and jobs in the fossil fuel industries. However, alternative energy is much more responsive to technology-driven innovation, and so it provides much better opportunity for durable competitive advantage. In addition, it stimulates much more employment than fossil fuels. Each megawatt of electricity generated by wind and solar employs more people, pays higher salaries, and generates more capital investment than a megawatt of electricity generated from coal. This strengthens the consumer economy.
The Internet offers another example of how regulation stimulates economic growth. The free and open internet has generated far more innovation, jobs, and investment returns than when telecommunications giants could restrict information flowing through their wires and ban third-party applications from their cellular phones. Good regulations do not stifle opportunity; they open up markets to new breakthroughs.
A national poll conducted for the American Sustainable Business Council found that “lack of demand” – and not regulation – is the biggest problem that small businesses face. Small-business owners see regulations as a necessary part of a modern economy (86%) and believe they can live with regulations if they’re fair and reasonable (93%). Enforcing regulations on the books is important to small-business owners (76%) and they view regulations as protection from unfair competition from big business (78%). And it’s not just regulations in general that small-business owners perceive to have value. Specific regulations to hold down health insurance premiums (78%), ensure food safety (84%), promote clean air and water (79%), and move the country towards energy efficiency and clean energy (61%) were also recognized as helpful by small-business owners.