Strength in Adversity

84 Pages·2012·12.06 MB·English

July–Sept 2012 www.malaysianbar.org.my
Chronicle of the Malaysian Bar
Strength in Adversity
PLUS
A Woman’s Lot
Final Report of Bar Monitoring Team at
BERSIH 3.0 Rally
Use Plain English in Legal Writing
In collaboration with
For Malaysian Bar circulation only

Contents
Contents
President’s Message
Readers’ Comments
PRAXIS
CHRONICLE OF THE MALAYSIAN BAR Editorial
Features/Articles
6 Economic Theories of Regulation
12 Between Sustainable Development and Saving Planet Earth
14 A Woman’s Lot
18 Use of Plain English in Legal Writing
BAR COUNCIL MALAYSIA 20 The Difficulties of Hiring Lawyers in the Face of New
Challenges and Prospects
BAR COUNCIL
15 Leboh Pasar Besar 22 UN Expresses Concern about Human Rights in Malaysia
50050 Kuala Lumpur
Tel No: (603) 2050 2050 24 Final Report of the Malaysian Bar on BERSIH 3.0 Rally
Fax No: (603) 2026 1313 / (603) 2034 2825 / (603) 2072 5818
Email: [email protected] 34 Resolution in Relation to the Events of, and Surrounding, the
Website: http://www.malaysianbar.org.my BERSIH 3.0 Public Assembly on 28 Apr 2012
36 Scope and Functions of the Bar Council Membership
MEMBERS OF BAR COUNCIL MALAYSIA 2012/2013
Department
President: Lim Chee Wee
SVeiccere-Ptarerysi:d ent: TCohnriys tWopohoenr YLeeoonwg Thong Events
Treasurer: Steven Thiru
38 Siri Pemikiran Kritis — Race Relation Laws: Backward or
Abdullah Hamzah | Ahmad Taufiq b Baharum | Andrew Khoo Chin Hock | Brendan Navin Siva Forward?
Desmond Ho Chee Cheong | Dipendra Harshad Rai | Faridah Yusoff | George Varughese
Gnasegaran s/o Egamparam | Hendon Mohamed | Hon Kai Ping | Indran V Kumaraguru 42 Extraordinary General Meeting of the Malaysian Bar
K Anandaraj Krishnasamy | K Mohan K Kumaran | Kanarasan Ghandinesen | Karen Cheah Yee Lynn
Kuthubul Zaman Bukhari | Low Beng Choo | M Ramachelvam | Mad Diah b Endut 44 Meeting of Bar Leaders
Murelidaran Navaratnam | Norazham Yahaya | Rajpal Singh s/o Mukhtiar Singh
Rao Suryana bt Abdul Rahman | Richard Wee Thiam Seng | S Gunasegaran | Sulaiman b Abdullah 45 Bar Council Fun Hunt 2012
Syahredzan Johan | Syamsuriatina bt Ishak | Vivekanandan Periasamy
Wan Zainuddin Wan Musa | Yasmeen bt Hj Muhamad Shariff 46 State Bar Committees Upcoming Events
47 Bar Council Professional Standards and Development
EDITORIAL BOARD Committee Upcoming Events
Bar Council LexisNexis Lifestyle
Syamsuriatina Ishak – Editor Ivan Yap Min Kee – Contract Publishing Manager
Azman Thaiyub Khan – Assistant Editor Annie Yeoh – Associate Editor 48 Siegfryede Einstein Peters — A Fishy Tail
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Praxis july-sePt 2012 1
President’s Message
What Doesn’t Break You
Makes You Stronger
To say that the last three months have days prior to the first reading of the Bills, senseless by the police, for no reason, after
been challenging, shocking, encouraging, and we are hopeful that he will keep walking out of the Royal Selangor Club on
exciting and triumphant for the Malaysian an open mind when the Bar submits its the afternoon of the rally.  The physical
Bar would be a gross understatement comprehensive memorandum2 on these injuries he suffered were unmistakable on
— from the challenges posed by the new laws. The essence of our grave his face and abdomen, and his pain will
new laws relating to security and crime, concern is that some of these provisions remain permanently etched in my mind.
amendments to the Legal Profession Act are a radical departure from the ordinary
1976 (“LPA”) regarding liberalisation rules of criminal law and are open to What was equally outrageous and
of the legal profession and disciplinary abuse. Most of these concerns were also disappointing was the reaction of some
provisions, threats of the establishment of expressed by our counterpart law societies politicians and certain mainstream media
an alternative Bar and then an Academy or bar associations in the United Kingdom, controlled by political parties who, instead
of Law, and a lawsuit to nullify the Bar’s Canada and Australia, when these of responding to the Bar’s message,
Extraordinary General Meeting (“EGM”) jurisdictions introduced similar provisions attacked the messenger, alleging that
regarding the excessive police force in their anti-terrorism legislation, largely in the Bar demonstrated bias and was pro-
during the BERSIH 3.0 public assembly; reaction to the 9/11 tragedy. However, BERSIH and pro-opposition.  Yes, the Bar
the shocking extent of police brutality and the one glaring provision amongst our is indeed biased! But biased only towards
violence; the encouraging support from new laws, which finds no equivalent justice and rights. The politicians went so
Members of the Bar and the public for elsewhere, is the new section 114A of the far as to suggest the establishment of an
the Bar Council when certain politicians Evidence Act 1950, which introduces a alternative Bar, which was subsequently
and mainstream media criticised the Bar presumption of fact in materials published dropped but with the hint of revival if
in reaction to the EGM; the excitement of on the Internet.3 we do not toe the government line.  Just
the commencement of Yayasan Bantuan when we thought this was the end of
Guaman Kebangsaan’s operations; to, Police Brutality, EGM, Proposed the matter, it was then suggested that
finally, the triumph of the Malaysian Bar Alternative Bar and Academy of Law the Academy of Law will be established,
in the sports arena. notwithstanding the lack of demand for
Throughout its existence, the Malaysian it by any substantial number of judges,
New Laws Relating to Security and Bar has consistently spoken up against lawyers, academics or corporate counsel,
Crime wrongs, injustices and oppression.  The or that such a body can exist as an
Bar’s condemnation of the police force association as opposed to a creature of
Perhaps it is no coincidence that it was for its handling of the BERSIH 3.0 rally in statute, or that the Government had twice
the Honourable Prime Minister, Dato’ Kuala Lumpur on 28 Apr 2012 was one abandoned the idea previously, in 1996
Sri Mohd Najib Tun Abdul Razak, who such instance.  Participants — including and again in 2003.  In fact, the ASEAN
recently moved to abolish the oppressive members of the public, media and Bar — Law Association (Malaysian chapter)
Internal Security Act 1960, as it had been were victims of police brutality, in contrast already exists and functions well without
his father, the late Tun Abdul Razak to the peaceful rallies in Ipoh, Johor Bahru, support of legislation.  The Bar will
Hussein, who had moved to pass the same Kuantan and Malacca, where the police continue to oppose the creation of such
piece of legislation in Parliament 51 years facilitated the assemblies in an exemplary an Academy by statute, which may be the
ago. The repeal1 of this primary detention manner.4 thin end of the wedge towards control of
without trial law is a substantial positive the Bar, as experienced elsewhere.
step in the Honourable Prime Minister’s Detractors say that the Bar should have
pledge of law reform. waited for the findings of the independent A Member of the Bar is challenging in
advisory panel investigating the rally, court proceedings the legality of our
However, the five pieces of new legislation before condemning the police.  However, EGM held on 11 May 2012, in particular
relating to security and crime — the new truth and facts do not change with the the notice provided for the meeting.  The
Security Offences (Special Measures) passage of time.  Those findings cannot Bar is well represented by our senior
Act 2012, and four amendment bills change the fact that members of our Members: Cecil Abraham, Tommy Thomas
involving the Penal Code, Criminal monitoring team observed police brutality and Darryl Goon.  Whatever the outcome
Procedure Code and Evidence Act 1950 just as they observed unruly (and at times of the legal action, it does not change the
— contain provisions that require review. violent) conduct on the part of some fact that 939 Members voted in favour of
We acknowledge that the Honourable participants.  The Vice-President and I were the resolution, whilst only 16 opposed it. 
Attorney General incorporated some of incensed and heartbroken when we met, a It cannot change the truth.
the comments the Bar made during the couple of days after the rally, a Member of
brief consultation period merely a few the Bar who had been arrested and beaten
2 Praxis july-sePt 2012
President’s Message
On behalf of the Bar Council, I express our Civil practice will have the Combined
thanks for the outpouring of messages of Rules, witness the increase and extension
support and encouragement from the Bar, in the jurisdiction of the Subordinate
retired judges, foreign law societies, public, Courts, and will have to contend with
and media (a few media professionals an increase in filing fees. The substantial
apologised to me for the unfair manner in changes include the reduction in the
which editors revised their articles).  These modes of originating process, extensive
messages assure us that we do not walk case management directions, and new
alone.  provisions for expert testimony. In order
to alleviate the burden of increase in filing
Improved Access to Justice, New fees3, we are drafting provisions for legal
Court Procedures and Amendments aid matters to be exempted. 
to the LPA
Finally, after many years of work,
Yayasan Bantuan Guaman Kebangsaan, amendments to the LPA involving
the groundbreaking national legal aid liberalisation and disciplinary provisions
foundation, began operating on 2 Apr have been passed in Parliament. The
2012, ushering in a new era in our criminal disciplinary amendments had been held
justice system where legal assistance back in the past so that they could be
will be provided to all Malaysians — tabled at the same time as the liberalisation
Tinoziva Bere, the President of the Law
irrespective of their financial means — at amendments. There is a lot of work to
Society of Zimbabwe.  The challenges we
the police station, the remand hearing be done with respect to liberalisation, in
face in Malaysia that I described above
and when they are charged in court.  terms of drafting of the guidelines and
pale in comparison to the problems faced
Insofar as criminal trials are concerned, criteria for the Selection Committee. A
by leaders of the Bar in Zimbabwe, who
Malaysians will only qualify to receive few foreign law firms interested in having
live with the prospect of detention and
legal assistance if their yearly income does a presence in Malaysia have already
physical assault.
not exceed RM36,000.  In order to have approached the Bar Council to enquire
effective access to justice, more Members about the criteria for entry.
However, we must learn from the
of the Bar must step forward to offer their
experience of others, and each play
time and energy.  More work needs to be Triumph at Bar Games
our role in ensuring the red line is not
done in terms of recruitment and training
crossed and in preventing the nation
of lawyers, sensitisation and training of One highlight during this period was the
from sliding down the slippery slope of
police and training of magistrates.  hugely-successful  Malaysia/Singapore
declining rule of law.  We must remain
Bench and Bar Games 2012 and the
resolute in expressing our views on what
The Bar is appreciative of the support Quadrangular Bar Games 2012, hosted
the law should be, what it must never be,
given by the Honourable Prime Minister, by the Advocates’ Association of Sarawak
and what authorities must never do in
who immediately grasped the necessity of (“AAS”) in Kuching. The events saw
violation of the rule of law. We must also
state-funded legal aid when we informed the unprecedented participation of
be mindful to adopt the advocacy style
him that approximately 80% of Malaysians approximately 800 lawyers from four
that works best in convincing as many
charged in the Magistrates’ Courts jurisdictions. The Malaysian Bar won
detractors and fence-sitters as possible,
throughout Malaysia are unrepresented at both competitions; the support of our
without devaluing the argument. 
trial stage, and the enthusiastic and tireless head of delegation — Tan Sri Dato’ Seri
leadership of the Honourable Attorney Zulkefli Ahmad Makinudin, Chief Judge
Lim Chee Wee
General as the Foundation’s Chairperson.  of Malaya — at the various sports events
President
The next few months will witness the certainly cheered our players on in their
Malaysian Bar
introduction of changes to criminal and race towards victory.  Our gratitude goes
25 June 2012
civil practice.  The amendments to criminal to Khairil Azmi Mohd Asbi, President of
procedure involve, amongst others, the AAS, and Leonard Shim, Chairperson
1 The repeal has yet to come into force. Even when
introduction of pre-trial conference, pre- of the Organising Committee, for their
it does, another piece of repugnant detention
trial disclosure, plea bargaining and victim organisation of, and fine leadership in,
without trial law persists in our statute books: the
impact statements, making the justice these Games.
Dangerous Drugs (Special Preventive Measures)
system more accessible to victims and their
Act 1985.
families.  These changes will modernise Comparative Experience and
2 At the time of writing, this memorandum is a
criminal trials by having pre-trial disclosure Maintaining the Red Line
work in progress.
by the prosecution to promote fair trials.
3 This provision has yet to come into force.
The availability of plea bargaining reduces On 31 May 2012 I spoke on the topic of
4 This is based on the reports from our monitoring
the risk of undesirable orders on either side political interference in bar associations,
teams in those cities.
of the matter and decreases the caseload at the International Bar Association’s
5 At the time of writing, the three Bars are in
of criminal trials. 7th Annual Bar Leaders’ Conference in
discussion with the Judiciary as to the quantum
The Hague, where I shared the panel with
of the increase.
Praxis july-sePt 2012 3
Readers’ Comments
iPcTmhrhapaexon inrgste eaw.nn loIty ltyl ir ,ke ettvho isteohe aderl etmnigcealaweglsi as faztoiricnrem e n oaiosrt t a abd swor yrieti.n l cmgoM.amkoeesdst CIpi Tmowrhanpoecgl utesrilhamcdeta uel rinilkinastestga iuo ttoeoinofs sn s.i un tMoogffo g ePrEemum-sFatbain lteti nihrTogsainn t,/ h aeEPa x-ravSapnetxead irsmp i teslhpenteanicn retPtgy rw aaao xon‘fiqus du nl tdoeee fsawb tmcei oonc nufeho rfaasritnle l de dmTon heaignemneg ssNb w aeeo erwmfsr ’ a ltCacrreovoteemlmu llemsobunuinncds eh oojd ouna bsR sll.uye .tgl ehasel.
Manjit Kaur Gill
Manjit Lavinder & Co. Keep up the good work, guys!
Petaling Jaya, Selangor
IIsskkaannddaarr AAll--BBaakkrrii b&i nA Yssuoscoiafft eAsl-Bakri
Ipoh, Perak
FltbeSaPhcpreguEretaoaeAerhtxabrctoustzhspel oteo f r sua esuMertrnhlo,p-daacss aogobltlsussiultnauoit yuhaeoP ttal iItldi dgninrs,oto wa i eslg,tn aAnn xub hi tdCstioslleehseihi ” to td lt eJi io irgoueiemmna enua vwrsncpvntegepetldasiauoa a hic tmta y(dhrnkhte“A.n e pB awtuadma,otea npn e “ dreiiy ct y aSn td oC Pso repdcohnarovfeoamo si uenrsuxipudcnneu,isyse len cs d gWgiaprkitv lu )nen’eeep saitAoedcdd l yatMptl c ese r nht b wefi eniSatt2aensm imnit d0bnd ahad 1oegrati r at h0lr tmta lanaic hi.csnF ncoaesIlsitedendrvee ’mes .essyura x isr fgmesnMp prt sooedeori nosuao oon shc rcrdfnshMeo t e a paio tvt Eianhruomireoltltdaepfraicncp .t cyioo a lleoTtetssumprhrih,rsoas rtp iei a,na ntnf eC onengmfigacea ldtslals loaoni y Fntgttorw ,tihgueeHl efiw n e tr nmewts e gsehdlogsphei :e t o rw tmahw oCTownkoewhbui eetteureerhwhnie rtnmri e e ts eutgs c n.hsaxtip henSotepcc alocori vaIttiinosmnefimihnsnigmscceuegsp”eei ein , gesn mao sig.n“negn fa T an d idartyRhneies n urewbdr -ehga lte eLlholi Ce gsilsipofivol hbleeooualni e nfnwbeaocr gdtnlCaef i.co ild rotia t nsnMo thu haos Prertt”oyi tuhai d o.psfpel2 e akneTs i0lulvif thi l1vuoaolp- ee 2nlfustlMs raye dret a iktqhaaft n eoeauernodd,srr aaf t lbs ltfegtii.tchruhtg hiolyInetee’ae m m g sl
SC Lim & Partners
Subang Jaya, Selangor
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4 Praxis july-sePt 2012
Editorial
From the Editor’s Keyboard...
Through thick and thin, the Malaysian Our strength in numbers was exemplified the event that day, and the succeeding
Bar has consistently done its utmost to in more jovial circumstances when the “Resolution in Relation to the Events
stand for what is right and fair, whether Malaysian Bar again emerged as winner of, and Surrounding, the BERSIH 3.0
it is for the interests of its Members or the of the Malaysia/Singapore Bench & Bar Public Assembly on 28 Apr 2012”.
Rakyat. We have been under fire lately, Games 2012 and Quadrangular Games
more so than usual, due to the politicising 2012 (involving over 1,000 members The Events section of Praxis highlights
of our stand against the injustices we of the Malaysian Bar, Law Society of various events held, and attended, by
find apparent around us. There’s a Malay Singapore, Sabah Law Association and Bar Council recently, including the Siri
saying “kalau ditelan mati emak, diluah Advocates’ Association of Sarawak and Pemikiran Kritis – Race Relations Laws:
mati bapak”, which illustrates that on representatives of the Judiciary), which Backward or Forward? organised by the
some occasions, anything you do could was held in Kuching, Sarawak during National Young Lawyers Committee on
have dire consequences and it becomes the Labour Day weekend (“the Kuching 31 Mar 2012; Meeting of Bar Leaders
impossible to please everyone concerned. Games”). during the Kuching Games which involved
Apart from the usual barrage of media leaders of the four participating Bar
slamming, our detractors have gone on to The Praxis Editorial Team is pleased to associations and invited representatives
rehash an old suggestion to replace our present our third issue of Praxis this year from the Brunei and Hong Kong Bar;
“vocal” association with another more themed: “Strength in Adversity”, which the now infamous Malaysian Bar
subdued and tamed academy of law. phrase was alluded to by the President of Extraordinary General Meeting held on
the Malaysian Bar in his message herein. 11 May 2012; and Bar Council Fun Hunt
We have always persevered through these The front cover photo for this issue is 2012 held on 19 May 2012.
adversities just by standing firm together. taken from the Malaysian EGM held on
This is undeniable in light of the sheer 11 May 2012. The regalia of the Malaysia/Singapore
number of Members who turned up at Bench & Bar Games 2012 and
the Malaysian Bar Extraordinary General This July-Sept 2012 issue is a collation of Quadrangular Games 2012 held in
Meeting supporting the Bar Council’s interesting reads, including: “Economic Kuching is captured in the Sports section,
motion on 11 May 2012. Theories of Regulation” by Paul Latimer next to reports of State Bar News,
and Nathalie Mccaughey; “Between followed by the calendar of upcoming
Sustainable Development and Saving events by the State Bar Committees
Planet Earth” by Roger Chan, a wake-up and the Professional Standards and
call about the effects of environmental Development Committee. Our Lifestyle
damage; “Use of Plain English in Legal section features a write up by Azman
Writing”, a compilation by Yang Pei Thaiyub Khan on Member, Siegfryede
Keng, of advice by a judge to lawyers Einstein Peters — “A Fishy Tail”, giving us
on their writing; “A Woman’s Lot” by insight into Peters’ pastime of fly fishing.
Diana Bentley, highlighting the adversity
that women in the profession have to We sincerely hope this issue will be a
overcome; and a Human Writes article by tasteful read!
Andrew Khoo entitled “UN Expresses
Concern about Human Rights in In view of the upcoming fasting season, I
Malaysia”. would like to extend the Editorial Team’s
wishes for a blessed Ramadhan and
Readers who might be lost as to what I Aidilfitri celebrations to all our Muslim
was referring to in the first two paragraphs readers.
above, should read the “Final Report of
the Malaysian Bar on BERSIH 3.0 Rally Syamsuriatina Ishak
Held on 28 Apr 2012 in Kuala Lumpur” Editor of Praxis,
prepared by the Malaysian Bar Monitoring Chronicle of the Malaysian Bar
Team as independent monitors on foot at 26 June 2012
Praxis july-sePt 2012 5
Features/Articles
Economic Theories of Regulation:
Regulation for the Regulated
by Paul Latimer1 and Nathalie Mccaughey2
Introduction … he intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an
When faced with market-related problems (market failures), end which was no part of his intention. Nor is it always the
legislators tend to pass a new law to fix the apparent problem. worse for the society that it was not part of it. By pursuing
Free unregulated markets may fail and result in socially undesirable his own interest he frequently promotes that of the society
consequences. At worst this failure may exacerbate social more effectually than when he really intends to promote it.
divisions between rich and poor, lack of opportunity, large scale I have never known much good done by those who affected
unemployment and the resulting slums so hauntingly described to trade for the public good.12
by Charles Dickens, Dostoevsky and other social commentators.3
However, market failures may take place under simultaneously The proposition [that the majority would prefer to pursue,
occurring events, such as restriction of competition4, unrestricted, their own economic ends] is so very manifest,
underproduction of goods5 or insufficient production of socially that it seems ridiculous to take any pains to prove it; nor could
beneficial goods6, externalities7 and/or information asymmetries8. it ever have been called in question had not the interested
sophistry of merchants and manufacturers confounded the
At a first glance, the actions of legislators to pass a new law common sense of mankind.13
against these market failures would appear to be the right
remedy. However, at closer inspection a deeper problem with Later free-marketeers like Milton Friedman continue to argue
the legislative approach becomes obvious — a problem which that free markets maximise individuals’ personal freedom.
has long been pointed out by economists. Firstly, the newly- This argument is based on the assumptions of “consumer and
passed law/regulation may not fix the problem. This may be producer sovereignty” — that consumers and producers are
because the legislation does not properly target the cause of the perfectly aware of, and informed about, what is best for them.
problem9, or the legislation may be ineffective and fail to achieve They argue that the most efficient way of allocating society’s
its purpose10. At the worst, the legislation may exacerbate the scarce resources is to allow individuals and firms (defined as a
problem.11 Secondly, new laws and regulation will soon become group of individuals working towards the same goal) to make
old laws and regulation and, in the absence of a sunset clause, their own production and consumption choices and to engage in
they may clutter the statute books long after the problem has mutually advantageous voluntary market exchanges within a free
been resolved. Thirdly, there may be other and more appropriate and competitive market. In other words, unimpeded markets will
approaches to cure economic problems such as market failure. make the best use of resources which in turn will lead to the most
These may require the willingness on the part of the legislator socially beneficial outcomes. If everyone looks after themselves,
to consider the potential economic costs and benefits of the everyone is looked after. In addition, firms acting freely in a free
proposed legislation compared to potential non-legislative market may provide a balance to power political and otherwise.
solutions for market problems. In the words of Milton Friedman:
This article focuses on reviewing the main economic theories of Economic arrangements play a dual role in the promotion
regulation to outline the basic economic principles that apply of a free society. On the one hand, freedom in economic
and to highlight some of the economic considerations which arrangements is itself a component of freedom broadly
legislators should keep in mind when trying to redress market understood, so economic freedom is an end in itself. In the
failures. Our main aim in this article is to bring closer together the second place, economic freedom is also an indispensable
disciplines of economics and law, and show how economics can means toward the achievement of political freedom.14
inform and give valuable insights to the law leading to enhanced
legal outcomes. The view that the free market works best for society has led to
the adoption of the “laissez-faire approach” (“to let something
Market failure in the free market happen”, passiveness). This approach has found apparent
vindication with the fall of the former centrally-planned Soviet
Eighteenth century Scottish social philosopher Adam Smith is Bloc (Communist Bloc) in the late 1980s and been widely
remembered for coining the term “invisible hand”, which he propagated by the world-renowned Department of Economics
asserted leads self-interested people to results, which although at the University of Chicago (Chicago economists).15 However
not intended as such, would benefit society and promote in economic terms “laissez-faire” is an actively taken approach
economic growth. Indeed Smith even goes so far as to state — something could be done, but a conscious decision has been
that markets should best be left to self-regulate. He wrote this in taken that nothing should be done as it is not necessary to
1776 at a time when market intervention was the norm: do something given that a free unimpeded market will fix any
possible problems. In the words of the free marketeers, “hands
off the market, especially legislative hands”.
6 Praxis july-sePt 2012
Features/Articles
Attitudes towards “laissez-faire economics” seem to have shifted uninformed consumer specifically. Regulation however always
in recent times. One prominent exponent of this shift is Nobel comes at the expense of freedom to the individual (consumer or
Prize-winning economist Joseph E Stiglitz, who asserts that the firm). In the words of J S Mill:
“invisible hand” may be so invisible that it may fail to direct
economic activity to socially efficient outcomes. Although the The Sole end for which mankind are warranted, individually
theoretical concept of an “invisible hand” leading the market or collectively, in interfering with the liberty of action of any
to socially beneficial self-regulation is appealing, it seems to number is self-protection (...) over himself, over his own body
overlook the role of modern firms to maximise profits for their and mind, the individual is sovereign21
investors, which in some instances may negate beneficial market
outcomes. Evidence shows that free markets often fail to deliver However, this curtailing of freedom is an accepted cost, especially
socially beneficial results for many reasons including information with respect to firms. In this case regulation aims at ensuring that
asymmetries and unbalanced market power, and examples of the quest for profits does not conflict with social welfare. Hence
market failures abound. the classic purpose of regulation, formalised in the consumer
protection hypothesis of regulation, is to correct existing market
For instance the growth and ongoing prosperity of tobacco failures while maintaining the underlying assumptions of mutually
companies has occurred in free markets. If one supports the advantageous voluntary market exchanges — that is why buyers
view that consumers know what is best for them and hence buy and sellers sell in the market — such that:
will make efficient choices, one must conclude that if a smoker (1) ignorance must be dispelled so that both buyer and seller are
freely consumes tobacco with full information about the health well-informed about the things exchanged;
consequences of smoking, and bearing in mind all the costs and (2) there must be a perfect and efficient market, with no market
benefits of smoking, then the tobacco market must be efficient imperfections impeding the flow of resources into or out of
and give rise to no logical reason for legislation. However, the industry;
economists have long recognised that in this instance, legislative (3) both parties know what they prefer; and
intervention may be necessary due to the inherent information (4) individuals are the best judge of their own self- interest.22
asymmetry about the health risks and addictiveness of smoking
and the negative social costs (externalities) of smoking.16 Since The once popular consumer protection hypothesis argues that
entering into force in 2005 the World Health Organisations regulation is passed to protect consumer interests, such as, for
Framework Convention on Tobacco Control has become the most example, to overcome information inadequacies (non-disclosure)
widely embraced treaty of the United Nations. It requires that and to improve performance — such as to promote safety
all of the 168 country signatories ban tobacco promotions and standards for goods, to promote standards of conduct in the
advertising in all forms of media. This treaty has led to large- industry and to require disclosure of information which would
scale regulatory reviews of the tobacco industry in the developed otherwise not be available. Posner calls this the “public interest”
world.17 theory, where regulation is enacted (supplied) in response to
the demand of the public for the correction of inefficient or
Another example of market failure redressed through legislation inequitable market practices.23
is the anti-competitive conduct case of Standard Oil Co. of New
Jersey v United States18. The Supreme Court of the United States With the consumer protection hypothesis as its backbone, the
found Standard Oil Co guilty of monopolising the US petroleum early 1960s and the 1970s have seen a dramatic increase of
market. Through a series of abusive and anticompetitive actions, government regulation in the developed world which has led to
Standard Oil Co had used its undue market power to force smaller firstly, an exponential increase in the amount of legislation passed
competitors out of the petroleum market industry. The decision with which firms have to comply, and secondly, a proliferation of
of the US Supreme Court resulted in a complete dismantling of creation of government agencies and commissions to monitor
what was the most powerful company in the world at the time. compliance by regulated industries. In this period, airlines and
Legislation, in the form of the Sherman Antitrust Act,19 had led railways, the trucking industry, the telecommunications and
to a satisfactory market outcome. Indeed the Sherman Antitrust other infrastructure industries have all gone through regulation,
Act can be regarded as the blue-print for legislation addressing deregulation and reregulation correct market failure. Recent
market failures due to impediments of competition: years have seen many more examples of regulation in whole
new areas such as disclosure laws, environmental laws, financial
The purpose of the (Sherman) Act is not to protect businesses regulation, product safety and workplace safety. Regulation
from the working of the market; it is to protect the public today in its different forms has one thing in common, namely,
from the failure of the market. The law directs itself not direct government control over essential choice variables: prices
against conduct which is competitive, even severely so, but of goods and services, limitations on quantities and capacities24,
against conduct which unfairly tends to destroy competition quality standards25, the nature of the production process26 and
itself20 investment requirements27.
These examples of information asymmetries, negative externalities However, the extent and growth of regulation since the 1960s,
and impediments to competition illustrate how markets can fail, evidence of problems arising from regulation and an increasing
and in response, legislators pass new laws (regulations) to correct anti-government flavour in academic economics circles has
these perceived failures in the market. sometimes demonstrated that intervention allegedly made in
the public interest may have undesired effects, giving rise to the
I Regulation to correct market failure following three questions:
Regulatory legislation designed to correct the inefficiencies and (1) When is regulation really desirable?
problems of market failure, by its very nature, aims to limit the (2) Is market failure replaced by regulatory failure?
activities of economic agents (firms/consumers) in order to protect (3) Whose economic interests and what economic interests are
the efficient functioning of the market in general and/or the often best served by regulation?
Praxis july-sePt 2012 7
Features/Articles
The search for answers to these questions has led economists to and Fels32 who may bring outside and independent perspectives
turn away from the widely accepted public interest theories of would not normally be part of the consultative process of
regulation (consumer protection hypothesis) with evidence that government and regulatory commissions.
indeed regulation may be ineffective — or it may be inefficient
because it has achieved its purpose at high monetary or social Nor can one expect the biases to be corrected by politicians
cost — with such failure or inefficiency being traced to: or by the advisers responsible for drafting new regulation or
(1) inattention to basic economic principles, and especially administrative action, as they, like most experts, are short-
neglect or underestimation of the responses of the economic term and will not be involved in any future ramifications of the
agent (firm or consumer) who rationally pursues myopic self- proposed regulation. Politicians will not intervene to correct the
interested reactions to incentives; pro-regulation bias if no opposition (no muckrakers) is perceived.
(2) failure to explore the full consequences, including the
incidental and remote consequences of the proposed Theories of regulation — “We must pass a new law”
regulation, and
(3) disregard or underestimation of the cost and benefits of the Economic and social theory, as well as practical experience, shows
proposed regulation.28 that new regulation (new legislation, new rules) may result in
unintended consequences. Over time, regulation might favour the
Although government intervention may be appropriate to regulated — rather than the intended stakeholders. Others may
correct market imperfections, economists have recognised that benefit more than the regulated such as lawyers, accountants,
governments — through their regulatory agencies — are faced compliance professionals. Proposed regulation must explain who
with an inherent problem of information asymmetry. Individuals will receive the benefits or burdens of the proposed regulation.
are the best judges of their own self-interest. For example, It should explain how competitive forces and freedom of market
regulation which recognises consumer sovereignty is an important entry will be promoted in the proposed regulation and the effects
option such as mandatory disclosure laws so that the balance is of the regulation on resource allocation.
redressed to ensure that both buyer and seller are well-informed
about the things exchanged. In this case, intervention is not to The ideal is to apply the consumer protection hypothesis that
subsidise the regulation but the provision of information.29 regulation is to “correct” market failure for the benefit of the
public and that a new law will fix the problem. But we must
However, the realisation that it is highly unlikely that regulatory remember that firstly regulators might have their own selfish
agencies will have at their disposal all the information that firms agendas, such self-aggrandisement, political support, career
in the industry have — information which is necessary to inform advancement and so forth. Secondly government agendas and
proper decision making — has given rise to a whole new body of programs, policy and regulation operate on a short time frame
economic theories of regulation. These new economic theories of mostly from one election period to the next (short-termism) and
regulation, which were first developed by Stigler in197130, provide the media does not provide a balancing power, given its own
the user with testable hypothesis on why and how industries are short attention span. It is often said that today’s news wraps up
being regulated and have driven the global deregulation waves tomorrow’s fish and chips. New regulation soon becomes history
of the 1980s and 1990s. but the regulation may live on with “government mechanisms
that have been increasingly superimposed on the market”.33
II Input into the drafting of regulation to correct market Friedman’s preferred uninhibited market competition as a means
failure of consumer protection. A competitive market might prevent
new regulation ageing as out-of-date old regulation.
New regulation may be prepared in response to some perceived
needs and pressures. Sometimes a government (political party) Economists and commentators present many ways to analyse
will have an “agenda” or a “program”, but as often as not, regulation, often involving conspiracy theories, the behind-the-
new regulation is reactive, not proactive. The beginning of the scenes work of lobbyists and interest groups:
“capture” of regulation may occur if and when regulators consult
with the potential regulated — such as the existing professional I Economic theory of regulation (Stigler)
associations and their members — for input based upon their
own experience as producers and/or sellers of the relevant Under the economic theory of regulation, economic regulation
product. The potential regulated may be transitioning from self- — the coercive power of the government — is seen as a product
regulation and may be able to offer the benefit of experience. whose allocation is governed by the laws of supply and demand.
Naturally there will be competition among pressure groups for Those in the legal process — politicians, ministers (political
political and regulatory influence, and regulation theory argues activators) and bureaucrats — are self-interested utility maximisers
that lawmakers will usually respond to the noisiest and most looking for the best return. Their main interest is to be voted in
politically valuable stakeholders. (elected or re-elected), renewed or to advance in their power,
jurisdiction and careers. Some politicians are driven by public
Ideally any new regulation — including legislation, rules, guides, service, but the objective of some other politicians is to win votes
policy statements — should in the development stage involve all rather than to enact new and maybe unpopular legislation which
stakeholders to balance potential drafting biases (intentional or might correct market failure.34
otherwise) but this rarely, if ever, happens. Stakeholders include
the relevant industry, professional associations, consumer/user Sometimes called the capture theory, Stigler’s economic theory
groups and experts such as economists, academics, and others of regulation argues that interest groups (the regulated) will be
with different and sometimes wider perspectives. Consumer/user driven by self-interest and will acquire government regulation,
groups generally lack the numbers, authority and experience as and that the regulation is designed and operated for the benefit
the professionals especially in the area of technical and specialised of the regulated. Stigler’s theory sees regulation as a product
legislative development. “Muckrakers” as described by Posner31 supplied to interest groups rather than an expression of the social
8 Praxis july-sePt 2012