Neoliberalism and Regulatory Capitalism: Understanding the "Freer Markets More Rules" Puzzle

Vlad Tarko

No 2017-02, Working Paper Series from Dickinson College, Department of Economics

Abstract: Over the past four decades, across the OECD countries and beyond, we observe a simultaneous increase (a) in the number, the budgets and the staffing of regulatory agencies, as well as the number of regulations, and (b) of economic liberalization, as measured by economic freedom and doing business indices. This is the "freer markets, more rules" or "more capitalism, more regulations" puzzle. This puzzle provides a window into the underlining mechanisms behind the complex regulatory developments in advanced democracies and transition economies, showcasing both some convergence trends and some diversity of the regulatory national patterns. Before the recent post-financial crisis backlash, the neoliberal agenda of privatization and deregulation seems to have happened in a roundabout manner as a side-effect of regulatory capitalism, rather than by implementing the policy and institutional recommendations of authors like Hayek, Friedman, and Buchanan. Three common hypotheses about "neoliberalism" don't work very well: pro-market ideology as a driver of policy, rent-seeking in favor of deregulation, and markets outpacing attempts at government regulation. Two other hypotheses provide better insight: a heterogeneous regulatory environment allows private firms to engage in regulatory arbitrage, and political entrepreneurs under public finance constraints look for novel ways of obtaining tax revenues. The emerging picture provides a serious challenge to both critics and supporters of neoliberalism.

Keywords: Regulatory capture; Regulatory arbitrage; Independent regulatory agencies; Ideology; Rule of law; Crony capitalism (search for similar items in EconPapers)
JEL-codes: D72 K20 K23 L51 P16 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-09
New Economics Papers: this item is included in nep-hpe
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