Platt Perspective on Business and Technology

Considering a cost-benefits analysis of economic regulatory rules – 8

Posted in in the News, macroeconomics, outsourcing and globalization by Timothy Platt on May 10, 2012

This is eighth installment in a series on the cost-benefits analysis of economic regulatory rules (see Macroeconomics and Business, postings 64, 66, 69, 70, 72, 74 and 76 for parts 1-7.) At the end of Part 7 I noted that up to there, I have been posting this series entirely in terms of United States law and the US marketplace and economy, and US history. I am going to turn in this installment to at least begin a discussion of these issues as they play out in a more global framework. And in this context I would cite three basic sets of international mechanisms that would together, effectively constitute as close to an international framework of regulatory control as is currently in place:

• The limiting and restricting factors of tariffs and sanctions: Import and export tariffs have a long history for many countries and I would cite the use of these trade restrictions by the United States as a source of working examples. Economic sanctions have also been widely used and as both economic control measures and as politically motivated statements, and for both I cite here the trade sanctions that were put in place by many countries against South Africa while it was still operating under a system of apartheid, and that are currently in place as of this writing against Syria, Iran and North Korea.
• The enabling factors of trade agreements and economy-connecting alliances: And I cite the North American Free Trade Agreement (NAFTA) and the European Economic Community (EEC) as working examples there.
• The systems of due diligence and usage requirements for participating in shared global financial networks: And for that I cite the primary networked system that manages the inter-bank global flow of international financial transactions: the Society for Worldwide Interbank Financial Telecommunication (SWIFT). As of this writing, both Syria and Iran are facing direct threats of being disallowed from the SWIFT system, greatly limiting their capacity to enter into any international transactions, private sector or governmental.

All of these mechanisms of international action and reaction have economic impact, and all of them serve to address, and seek to change current trade and economic practices. In that regard all of these tools of statecraft have impact that can mirror the restriction and enablement of fiscal and economic practice that derive from intra-national regulatory law. But there is a crucial difference between them and regulatory law of the type I have been discussing up to now in my earlier series installments. All of these international actions are formulated and carried out first and foremost as political responses and secondarily for their economic impact – and I include trade agreements and economic alliances in that. While regulatory law is at least in principle, formulated and enacted primarily for fiscal and economic purposes and only secondarily for political reasons.

• That is theory; in practice, the distinctions between fiscal and economic, and political and ideological blur and disappear, and both as the details of these processes are developed and as they are enacted and followed through upon.

Partisan politics shape and guide both the creation of regulatory law and its enactment. Turning back to United States history for another brief example, the Sherman Antitrust Act of 1890 was initially enacted to limit the capacity of single companies to dominate entire markets through action that would be specifically designed to restrain trade. But in practice this law, as hinging on that clause: “in restraint of trade” was used much more for the purpose of union busting than for limiting the growth or actions of large corporations and for a great many years after its initial signing into law.

Sanctions and tariffs on the one side and free trade agreements and economic alliances on the other have been formulated for complex mixes of political and economic purposes but they can and do strongly regulate trade and economic behavior whatever their original motivation. And once more, turning to United States history for a brief example, the Smoot-Hawley Tariff Act of 1930 probably did more than any other single politically motivated decision to create the Great Depression out of what might have just been a very significant but much briefer recession.

A second crucial difference is that all of the international mechanisms cited here, and others as well, are all essentially ad hoc and at least intended to only directly impact upon specific countries. None of them are globally organized or globally organizing at least by intent – defining and regulating acceptable best practices across entire global marketplaces the way that intra-national regulatory law at least seeks to within national boundaries.

And this brings me to the third international mechanism bullet point that I included above, but then left out of further discussion, and I pick up on this with a focus on the SWIFT network that I cited by way of initial example. And the issue here is in how all of this changes when it plays out in the ubiquitously interconnected context of the internet and at speeds and at depths of immediate interaction that were until recently, inconceivable – but that are now simply taken for granted. SWIFT and related systems are where both intra-national regulatory law and international economy-impacting measures and agreements confront the changing needs and dynamics of our now real-time interconnected world. And my goal for the next installment in this series is to at least briefly delve into that and its implications.

You can find this and related postings at Macroeconomics and Business and also at Outsourcing and Globalization.

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