Law, regulation and economic life – from “how much regulation?” to “who regulates?”

Catholic social teaching has a lot to say about the basic systems of law that should underlie a flourishing business economy. In recent years, Catholic social teaching has also commented on regulation. Although a distinction between law and regulation is not made explicitly in Catholic social teaching, such a distinction is helpful. It would help clear up confusion between the role of government in regulating economic life (where prudential judgement might be applied both in relation to who regulates and how much) and the role of government in providing the basic framework of governance.

One way of thinking about this is to regard law as only being designed to achieve the most general social goals through a set of rules of just conduct. Law is a mechanism of ensuring that basic freedoms are protected, agreements are enforced and persons can keep what is justly theirs. In other words, laws extend the scope of people’s freedom by ensuring that they are unencumbered by others (in the case of the criminal law), that their agreements are enforced (in the case of contract law), that they prove ownership of their property (in the case of property law) and that others do not do them harm (in the case of tort law).

On the other hand, one might think of regulation as being designed to achieve very specific social objectives. So, for example, all Canadian radio stations are required, by law, to play Canadian artists on the airwaves at least 35 per cent of the time, especially during the hours of 6 a.m. and 6 p.m., Monday to Friday. This is a regulation directing people what to do in particular circumstances.

Countries that lack the basic principles of law, good governance and methods of enforcement are very difficult places in which to live. On the other hand, the huge growth of regulation directing people how to behave in particular circumstances can be extremely damaging.

Countries that lack the basic principles of law, good governance and methods of enforcement are very difficult places in which to live. On the other hand, the huge growth of regulation directing people how to behave in particular circumstances can be extremely damaging. Indeed, many countries can be highly regulated despite the basic legal framework being missing. In such countries, corruption often flourishes as people pay bribes to avoid incomprehensible regulation that is almost impossible to obey.

In fact, the basic requirements of the law and good governance are described in Centesimus annus (48):

Economic activity…cannot be conducted in an institutional, juridical or political vacuum. On the contrary, it presupposes sure guarantees of individual freedom and private property, as well as a stable currency and efficient public services. Hence the principle task of the State is to guarantee this security, so that those who work and produce can enjoy the fruits of their labours and thus feel encouraged to work efficiently and honestly. The absence of stability, together with the corruption of public officials and the spread of improper sources of growing rich…constitutes one of the chief obstacles to development and to the economic order. (48)

If contracts are not enforceable in the courts or recognised by legal systems, or if corruption or violence leads them to be enforced perversely, then exchange relationships cannot develop. If it is not possible to register businesses legally, they cannot write enforceable contracts of employment and their employees are then at the mercy of the employer; in addition, businesses cannot expand and cannot advertise.

There is a similar problem if it is not possible to register the title of houses. According to UN figures, 23 per cent of the world’s population live in informal settlements or slums where property rights are not properly registered or otherwise legally defined – over one billion people. Of these, 370 million live in East or South East Asia, 238 million live in sub-Saharan Africa and 227million live in Southern Asia. That is why some of these places are the poorest in the world. If somebody is in an unregistered house and does not pay the rent, the contract cannot be enforced by the courts – instead it might be enforced at gunpoint. Human misery can be appalling as a result.

Similarly, if property rights are not enforced justly or are not recognised, there are a number of other consequences.

  • Only very limited capital investment can take place
  • People will  not invest in maintaining or improving a home or business property
  • People cannot borrow against a property to buy it, improve it or to start a business​
  • It is unlikely that services such as sewerage etc will develop​
  • Housing develops haphazardly​
  • Property rights may be undermined through coercion​
  • There is no recourse against pollution etc

Gwartney and Lawson studied one hundred countries from 1980 to 2000 and their legal systems were rated according to the criteria established by the Fraser Institute’s Economic Freedom of the World index. The top twenty-four countries ranked by quality of their legal systems had an average GDP per capita of $25,716 at the end of the period and average economic growth of 2.5%. The bottom twenty-one countries had an average income of $3,094 per capita and average economic growth of 0.33%. Development is impossible without the basic legal structures necessary for free economic activity.

So those who argue that economic life is over-regulated are not calling for anarchy or a free-for-all. They are often the strongest supporters of a framework of criminal law, contract law, property law and tort law, justly and uncorruptly administered so that the weak are protected and business and families can thrive.

The rule of law and basic good governance require the government to develop law that is abstract in nature. It does not intend a particular outcome. Regulation is different – it directs economic and social life to achieve particular outcomes.

As is noted above, there have certainly been calls for greater regulation of economic life. Regulation can bring problems such as greater unemployment, complexity in the financial sector (many would say that regulation was complicit in the financial crisis) or, as noted above, corruption. But there is a different question which is worthy of greater exploration. This question is not “how much regulation should there be?” but “who should regulate?”. The paragraph above from Centesimus annus continued and, implicitly, raised this question. Though it referred to “human rights”, the point is more widely applicable:

“Another task of the State is that of overseeing and directing the exercise of human rights in the economic sector. However, primary responsibility in this area belongs not to the State but to individuals and to the various groups and associations which make up society.”

The encyclical Caritas in veritate commented on the increasingly binary model of “state and market”. Some people would argue that the state has crowded out civil society and others that the market has crowded out civil society. Both sides of that argument might well agree that civil society should have greater responsibility for regulating economic life. The table below has some rather simple (perhaps simplistic) examples of how the state has taken over regulation from institutions that emerged from economic, professional and civil life. That takeover has not always been a success:

Area of economic and social life Traditional regulatory body Regulatory body today Notes
University education Independent universities as communities of scholars Office for Students 52 regulatory documents for universities produced in last 12 months
School education Independent Schools Council, religious bodies (e.g. Catholic Church) Ofsted Proposals have been put forward for Ofsted to inspect Sunday schools and church youth clubs which were only dropped after lobbying
Examinations (e.g. school, trade, vocational) Universities, City and Guilds, professional and trade bodies Ofqual Total chaos in school examining system in last three years
Labour markets Trade unions, staff consultative bodies, professional bodies Statutory regulation Genuine problems because of union tradition of promoting class conflict
Financial markets Stock exchanges; professional bodies (e.g., accountants, actuaries) Statutory regulation Little statutory regulation of financial markets in UK until 1986. Since then statutory regulation has reached millions of paragraphs with no obvious improvements in outcomes


Many would agree too that bodies that emerge from markets and civil society to regulate economic life help to promote fraternity and they civilise economic life. Government regulatory bureaucracies are remote and depersonalise and dehumanise our lives. Ticking the box and filling in the form replaces human judgement, discernment and personal relationships.

We should, once again, have a debate about “who regulates?”. There is no doubt that such a debate could be underpinned by the principles of Catholic social teaching, especially the principles of the common good and subsidiarity.

Photo by Markus Winkler on Unsplash

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Author: Philip Booth

Published: 15th April 2022

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© Catholic Social Thought 2020