Many people today support the idea that markets need to be regulated -it’s almost like a propaganda line, the way people spit out this rhetoric without even thinking about the situation. They criticize the free-market for its failure to keep certain things in check, forgetting that we don’t actually have a free-market in the first place.
When a regulatory authority is established in a market, it is no longer a free market -it is now a regulated market. This isn’t complex economic jargon; it’s pretty basic stuff, yet people still like to blame the free-market and capitalism for the downfalls of modern society. Take note of this as we look at what happens to regulated markets, specifically in the creation of what is called the “Black Market”.
The Black Market
Economic/business regulations are proposed in an effort to stop some market activity that is occurring, but some see as undesirable. Some of these things are pretty general and universal, like minimal standards for working conditions, but due to the multiplicity of opinions in the world, many regulations proposed by some will be rabidly opposed by others -things like the War on Drugs, which many oppose strictly because they see it as a war against personal freedom.
Most market regulations can be undermined by simple bribery, but in cases where entire markets are restricted, such as the drug trade, this regulation creates a black market where this business continues in the cultural underground and just out of reach from the regulatory authority. Black market operators organize and attempt to control their businesses by threat of violent force -we can see this development in what we commonly call “the Mafia”.
Economic Coup d’état
Black markets are obviously illegal, and are, therefore, propagated by elements of society that not only reject governmental authority, but will often go to extreme measures to achieve their goal. The reason that creating a regulatory authority is dangerous is because it is the natural tendency for the black market to attempt to subvert this authority, ultimately, attempting to control the regulator. This is pretty much an inevitable development… here’s why.
As black markets are illegal, operating in one comes with criminal consequences. This can range from simple fines to life in jail, or even the death penalty. Because these markets operate outside of the “protection” of the law, they must enforce their own law -murder is a common end result of black market operations. To maintain continuity, it’s in the interest of the black market operators to find ways of escaping this punishment in a variety of ways. The obvious end-game goal is control of the governmental authorities… to which, there is no end to the level of power that the black market will attempt to takeover.
Risk Creates Value
When something is illegal, it makes it harder to get. Scarcity and risk increase value, and this makes black market operations very profitable. This makes the black market very attractive for those interested in high risk, high return business. The ultimate high risk action would be to takeover the regulatory authority in an effort to ensure protection from punishment, as well as open up the possibility to restrict other markets and profit from them or even provide authority to establish a monopoly.
Battling the Black Market
Battling the Black Market is obvious aim of the market regulatory authorities, but this is a problem for a couple of reasons -there is only so much that the authorities can do, and the public is not willing to take care of the problem, themselves.
Limits of Action For the Authorities
This Black Market becomes vicious when faced with aggressive regulatory authority, but there is a fine line between a justice system and just another gang of thugs. Battling organized crime is not an easy task when you are imposing a system of law and regulation -you have to follow the laws you’re putting forward. If you don’t, you’re on the road to becoming a corrupt totalitarian nightmare.
Our system of justice revolves around our prison “reform” programs, but this is often the starting point for a lot of gang activity. The prison system actually provides protection for a lot of higher ranking members of black market organizations, and guards can even be bought-off for added protection. The sad fact is that the market regulators cannot effectively battle the enemy it creates, and this is evident by the amount of violence, corruption, and general crime within the prison system, itself.
Limiting the Public Response
To make things worse, the regulator usually claims monopoly right over this system of justice, severally limiting the amount of effort that the general public can contribute to regulating interaction. By appointing a regulatory authority, we are essentially giving-up our power in this market interaction. Chalk it up to laziness, ignorance, deception -the real problem is that it is a self-feeding issue -once you’ve established a regulator, people sit back and wait for the government to fix the problem, often not realizing the ineptness of the government in handling this problem of general logistics.
How far do you go for nothing? Stifling market growth for the sake of an illusion of control… only creating more problems along the way, and not only preventing people from doing anything about it but making them into criminals, as well.