Regulation is necessary to ensure that companies, pressured by the contraints of competition and the need to generate profits, take the precautions necessary to ensure public safety. The recent revelations about decisions made by BP before the gas blowout in the Gulf are once again a demonstration that strong, sophisticated and effective regulation must accompany business activity. This benefits everyone in the market as much as a public that has to bear the costs when things go wrong.
Regulatory capture is a bigger problem in America than elsewhere, partly because of our cultural predispositions. Respect for regulation as a vital element of free market activity, and respect for regulators–both earned and accorded–is necessary to modernize our regulatory system and meet adequately the complex challenges of the modern economy.
Regulation and markets are necessary corollaries. But effective regulation is a complex, technical and very difficult task to accomplish. How effective regulation is achieved will be influenced by ideological preconceptions and the nature of the markets sought to be regulated. Achieving the right balance is overall policy goal of regulation and its reform.