Is Laws and Regulations Part of the Problem or Part of the Solution?

Laws and regulations have always been one of the achievements of civilised man. It marks one of the major differences between mankind’s pursuit of justice, fairness, and equality and the savagery of common predators in the animal kingdom.

The first known written and recorded law in history is known to us as the Hammurabi Code that was enacted by King Hammurabi of ancient Babylon. Dating back to around 1760 BC (rough estimate), the Code of Hammurabi was basically a lists of crimes and their respective punishment to the evildoer. Being openly displayed, no citizen could plead ignorance of the law as an excuse to escape judgment.

Recent events have nailed to the core the importance of laws and regulations in the everyday governance of human behavior. the collapse of the Glass Steagall Act that prohibited investment banks to merge with commercial banks helped set the stage for the recent subprime crisis. Devastating as it was, the subprime crisis serves as a reminder of what would happen when laws and regulations cease to function properly.

Most economists would also agree that the best ways for countries to grow is the through proper governance (with laws and regulations) of their budgets, exchange rates, and etc.

While some people argue that China continues to be an anomaly in the sense that they seem weak in terms of laws and regulations, yet strong in economic growth and development, one should remember that China’s growth was spurred by the privatization efforts under Deng Xiaoping.

In other words, China owes a lot of its development not only to its artificially low exchange rates, and shift of underutilised labour to more productive sectors, but also to the laws protecting private ownership.

Laws protecting private ownership acts as an incentive for entrepreneurship and investment activities. Similar to copyrights and Patent rights, laws protecting private ownership ensures that Mr. I have thrown my money into an investment opportunity would enjoy the fruit of his labour.

As a golden rule, laws must provide stability and certainty. When they cease to produce either, laws may sometimes be part of the problem. Countries such as Myanmar and Zimbabwe are notoriously known for legal abuses and the bending of laws for the benefit of its elite.

Truth be said, laws is not only about morality, democracy, and fairness (as all three are subjective to the individual) but to promote property rights, efficient management of resources, and opportunity for entrepreneurs to excel. In doing so, these laws provide an incentive for economic growth as people are aware that what they are working for will be protected by the governing body.

Malaysian land law is a good (bad) example of the failure of laws and regulations to provide stability. In the Boonsom Boonyanit case, a forged (but seemingly original title) defeated the owners original title. Private ownership goes down the drain. I dare say that investors should shake every time they buy property in Malaysia.

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