What are reasons why the private sector needs to be regulated?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are at least two ways to argue that the private sector needs to be regulated.  One is an economic argument while the other is more of an ethical/political argument.

The ethical argument for regulation says that businesses will act in unethical ways if they are not regulated.  They will end up hurting consumers, workers, and the general public. Therefore, it is ethically necessary to regulate them.  For example, we can argue that businesses that are not regulated will skimp on safety measures and will endanger their workers.  Therefore, we need to regulate business so that workers do not get hurt. We have to do this, and things like it, because it is unethical to allow businesses to do things that will harm other people.

There is also an economic argument for some regulations.  We can say that regulation is necessary to avoid market failures like the failure to provide public goods or the failure to prevent negative externalities.  Take, for example, air pollution.  In a pure market economy, businesses have an incentive to pollute the air because the costs of the pollution (poor health, for example) do not get added to the price of their product.  They can make their product and sell it for a profit while other people get stuck paying for the effects of the pollution.  Regulation is necessary to prevent this from happening because the market cannot prevent it.

For these reasons, we can argue, it is necessary to regulate the private sector.