When rules no longer achieve their aim

The surprise result of the U.K. Referendum has shown us many things about the UK. The most stark is how divided the country is. The exit campaign claimed the victory, but it was by a small margin and thus it is not easy to say this is what the country wants. What is interesting, is how the population is divided. It is divided along so many different lines  – age, education, economic means and location. The system we have in place for a democratic government says that we elect representatives of the people to make key decisions, but how can any person represent the people when it is so divided.

Traditionally the divide has not felt so deep and has largely been limited to geography allowing for a representative from an area to be elected. But now we find ourselves in a situation where the MPs do not agree with the majority of people they have been chosen to represent. (Only 145 out of the 650 MPs voted for Brexit) So I think it seems a good time to ask, “what do we want the government to do?”, “What is their role in society?”

If I were to summarise their mission in a sentence it would be to “protect all citizens”. But what does this mean, and how far should it go? Has our current system gone too far in its duty to protect, that it is no longer in the best interests of the citizens? The UK is often referred to as a nanny state because of the extent to which the government tries to protect its citizens. Is this a good thing or does it open itself up to abuse with an elite few able to take advantage of the multiply layers of regulations and laws at the expense of the general man in the street?  As an example let us look at the banking sector. Within the banking sector, there are more and more rules being put into place each day. There are rules on how much money the banks can lend, there are rules on what they can write in their adverts, there are rules on how much money the bank can take in as deposits, the list goes on and on. In fact most banks have a whole department whose only goal it is to see to it that the bank is following all the different rules – a compliance team set up to understand the rules and ensure that the bank always adheres to all the rules.

These rules have been put in place for the protection of consumers, but do we need them and are they in the best interests of the people? One of the key problems with too many rules is that it creates a barrier to entry. To start a bank you don’t just need the working capital to run the business, the regulatory requirements are so great that you would need 3-4 times your initial capital requirements to ensure that you are able to comply with all the rules.  This limitation on new entrants into the market place means that the existing banks get bigger and bigger, and that competition is limited resulting in price fixing and collaboration between the banks.

In the end you need to ask, are these rules really protecting the consumer or the bank?  Is the protection of the big banks by limiting competition a price worth paying for a clear set of rules on how to protect  consumers? Can we ever have enough rules to ensure that the market crash of 2007 never happens again, or are the things we are putting in place with the best of intentions having unintended consequences?

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