Certification Instead of Regulation

In the last couple of generations, regulation has exploded, with harmful effects on both our freedom and the economy.  One of the areas of regulation involve rules that are designed to protect consumers from being harmed by the products that they purchase.  Yet, there is a strong argument that these regulations are largely unnecessary.

Free market advocates generally argue that much of this regulation is not needed – that the market will develop mechanisms for protecting consumers.  The reputations of sellers and brand names provide strong incentives for sellers to provide safe and effective products.  Moreover, private companies, such as consumer reports, can also test the products and sell the information to consumers.

But many people don’t trust the market to provide the requisite safety and information.  Even assuming they are right, that does not mean that one needs regulation.  The government could always provide for certification rather than licensing or approval of products.  For example, the government could establish the same regulatory standards that it now does, but merely certify products that complied.  It might require products that do not conform to the standards to contain a very visible mark that stated “Not Regulated.”  Charles Murray advocated this system some years ago in his book, What it Means to be a Libertarian.

There are, moreover, additional advantages of this system that Murray did not mention.  It also provides government with better incentives.  When government regulates at present, it often has little incentive not to impose too strong a regulation, because all of the parties are required to follow the regulation.  But under a certification system, the more stringent the regulation, the more costly to the relevant businesses and therefore they have less incentive to follow the certification.

Moreover, if a large percentage of the relevant businesses choose not to follow the government certification requirement – and the market continues to operate successfully – the government actions will become increasingly irrelevant.  Consumers will come to ignore the “Not Regulated” mark, since it seems not to provide information about the quality of the product.  Consumers in California have the same reaction of not paying attention to cancer warnings required by Proposition 65 for many businesses.

Thus, if the government seeks to avoid irrelevancy, it will have an incentive to adopt standards that are not too burdensome and close to what consumers would desire.

Reader Discussion

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on August 25, 2015 at 11:06:09 am

I like it -- insofar as we're discussing product qualities that affect primarily the consumer. The feds already do this with the Energy Star system of rating appliances.

But this policy would not work well for regulations designed to protect (or harm) third parties. Arguably the goal of building inspections is not to protect the property owner, but the neighboring property owners. Arguably the goal of banning Saturday Night Special handguns is not to protect the guy holding the gun, but guys in the vicinity. Arguably the goal of regulating certain recreational drugs is not to protect the drug user, but people who have to live in proximity to the drug user. Arguably the goal of banning trade in ivory is not to protect buyers of ivory, but to protect suppliers (i.e., elephants). Arguably the goal of banning trade with Cuba was not to protect buyers of goods and services, but to harm sellers. Etc.

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Image of nobody.really
on August 25, 2015 at 14:11:30 pm

This is precisely the situation with the interior design profession. Most states have no regulations at all; some have certification; and three (FL, LA, NV, along with DC and Puerto Rico) have some form of licensing (e.g., Florida requires a license to perform commercial interior design but not residential). The experience of the certification states largely confirms one of the observations above, namely, that relatively few interior designers bother to become certified, presumably because the public does not find that information relevant. Notably, the majority of certified interior designers in states we have examined were grandfathered in and do not even possess the credentials nominally required for certification. Since there is no duty to disclose that fact to potential clients, it appears the certification laws might actually do more to mislead consumer than to inform them -- not a surprising result, given where these laws come from and who drafts them: https://www.asid.org.

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Image of Clark Neily
Clark Neily
on August 25, 2015 at 20:20:08 pm

Okey dokey - fair enough (the poor elephants, oh, the humanity!!!)

Yet, think about auto safety / crash test certifications. This affects both 2nd and 3rd parties - but do people really pay attention.

Consider that a tiny little piece of *##@## such as the Chevy Volt of Nissan electric thingy can get a 5-Star rating - yet in which vwehicle would you rather be in the event of a crash - the 5-star Volt of a 4-Star ford F-150?
Me, I'll keep on trucking, pal! People forget or do not realize that the ratings are based upon class of vehicles - and let's not talk about the safety certification for a smart car!
I am in general agreement with you here - BUT, I must point out that the goal of building inspections while ostensibly aimed at the protection of 1st and 2-3 parties, may also involve, much like so much other regulations, a *payoff to certain developer interests that appear to benefit from additional costs associated with *inspection."

It is, after all, a question, of the extent to which the local bureaucrats have succeeded in extending their tentacles. Should one pay more for inspections and permits for a small backyard deck than the cost of materials and labor. Now they are defining the correct roofing nail length - even though this suggestion increases the likelihood of leaks.

Scale and scope of regulation / certification is primary - something about which the ambitious bureaucrat is apparently unaware.

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Image of gabe
on August 27, 2015 at 11:15:19 am


Who shall certify the certifiers?

Yes, this is an alternative form of **information."

But, there is no universal or monad process to resolve the various issues that arise in human interactions and relationships.

Certifications will be shaped in major ways by motivations of the certifiers, just as regulations are shaped by motivations of regulators.

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Image of R Richard Schweitzer
R Richard Schweitzer

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