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Thursday, June 28, 2018

How Governments Hijack Corporate Self-Regulation

It is important to call out the attempt to portray all executives as ruthless monsters, as downright cynical, and not reflective of reality.

Many companies have “self-regulated” by launching initiatives that improve the marketplace, e.g. setting ethical work standards or by providing consumers with more information. These policies are particularly encouraging because they are completely voluntary. However, governments are continuously perverting self-regulation for their own narrative.

A Few Examples of Self-Regulation

There are many reasons why companies choose to self-regulate. From a pure marketing perspective, if a company is believed to care about the well being of whichever beneficiary it tries to assist, then this plays out well in terms of sales. After all, we live in a time where consumers are increasingly sensitive towards the consciousness of corporate action.

Many critics of the free market believe that without government oversight in food safety, consumers would be put at risk. To this concern, many free-marketeers respond by saying,”businesses do not have an incentive to poison their customers.” And while that is true, it should be said first that before there’s an incentive not to kill, there is a moral reason not to kill. It is important to call out the attempt to portray all executives as ruthless monsters, as downright cynical, and not reflective of reality.

In fact, there are many examples of constructive self-regulation that were initiated by business themselves.

In the United States, pregnancy warning labels on alcoholic beverages are mandatory and produced by the Surgeon General. But the situation in the European market is different.  Warnings against alcohol consumption during pregnancy are actually produced by the European Drinks Initiative, which is a joint effort by groups that include the Scotch Whisky Association, the Latvian Alcohol Industry Association, and the Austrian Spirits Association. Together with national groups, which are also industry-funded instead of government-funded, these groups advocate for reasonable alcohol consumption without being told to do so by the state.

The decision to put the pregnancy warning on brand packaging was adopted in December 2006. This self-regulatory effort was a success.

IPSO handles complaints and provides arbitration by attributing financial compensation or asking that corrections be made.

Another example is the oversight of media organizations in the United Kingdom, called the Independent Press Standards Organisation (IPSO). This body is a self-regulator paid for by the publishers, which are also its members. All major media outlets are covered by this regulating body, including both national and local newspapers, radio, and television stations. This gives IPSO legitimacy to act on behalf of consumers who feel that they have been harmed by a news story. If, for instance, a news story unjustly damages the reputation of a person, IPSO handles complaints and provides arbitration by attributing financial compensation or asking that corrections be made. News outlets that are not a member of IPSO (such as Breitbart London) are looked upon negatively because refusing to adhere to basic ethical standards of journalism by principle, is inherently suspicious.

And yes, a body such as IPSO is most certainly imperfect. But those who would question self-regulating bodies by the mere fact that they are funded by those who they are being investigated by, should take a closer look at our justice system right now. In the case of a policeman fatally shooting a person, the defendant works for the government, the prosecutor is funded by the government, the judge is funded by the government AND appointed by the government. Requiring perfection from voluntary associations while ignoring the flaws of state institutions would be entirely unfair.

Other instances of European self-regulation exist in the following liberal professions: engineers (1982), lawyers (1988), perfusion nurses (1991), advertising agencies and consultants (1992), restaurateurs (1993), solicitors (1995), travel agents (1996), Internet service providers, hairdressers, asset managers, estate agents (2001), hoteliers (2003), with a range of ethical rules concerning the environment, worker’s rights, consumer protection or health & safety.

Self-Regulate, or Be Regulated

The European Union however, has found an ingenious way of perverting this system of self-regulation by turning it into a means of legitimizing its own regulation.

Here is how it works: the European Union submits a target that it wants to have reached by a certain deadline, such as a 10% reduction in diseases caused by X product. It then monitors the aims, methods, and results that the industry achieves and then judges whether or not it needs to regulate itself. But the standards are set in such a way that the industry could not possibly achieve the goals within a reasonable amount of time and with the necessary efficacy. And when these companies inevitably fail to meet these standards, the EU politicians and bureaucrats say “we told you, self-regulation doesn’t work,” and then regulate across the board.

For instance, the European Union is concerned with airing alcohol ads on TV because children will see them. When broadcasters offered to limit all alcohol advertisement and any glorification of alcohol during children’s shows, the EU was unsatisfied. Vytenis Andriukaitis, EU Commissioner for Health and Food Safety said:

“I do not agree with self-regulation that applies only to ‘children programmes’ or ‘children channels.’ Children must be protected from alcohol advertising at all times, not just when watching children channels.”

By that standard, it’s only a matter of time until alcohol advertisements would have to be banned on each and every channel.

For bodies such as the EU, self-regulation is a convenient self-fulfilling prophecy of failure. But self-regulation needs to be voluntary to produce actual results. Otherwise, it is nothing but a marketing trick for regulators to step up and do what they were hired to do.

  • Bill Wirtz is a Young Voices Advocate and a FEE Eugene S. Thorpe Fellow. His work has been featured in several outlets, including Newsweek, Rare, RealClear, CityAM, Le Monde and Le Figaro. He also works as a Policy Analyst for the Consumer Choice Center.

    Learn more about him at his website