A government puts regulatory authorities in place so that activities can be regulated to benefit the public, protect the environment, and prevent market failure. Some of our regulatory authorities have been banning things right and left. It is important to note that banning things, without thinking through their repercussions, can have harmful economic and psychological consequences.
There are five things to consider in terms of the economic consequences of bans. First, though regulatory authorities are sometimes put in place to prevent market failure, ill-planned regulations can actually cause such failure. Assume there is a certain problem (eg, overpopulation) that a government wants to address, and entrepreneurs come up with products (eg, contraceptives) to tackle the problem. A ban on advertisement of such products will discourage future entrepreneurs from making those products in the long run.
Now, although the government admits that there is a problem, and there is also ample demand for the product which will solve it, putting a ban will, in the long term, reduce the number of suppliers of that product – thus eventually causing market failure, or at least defeating the policy of the government.
We should also reflect on whether an advertising ban restricts promotion on all media. Even if regulators ban advertisements on media over which they have control, entrepreneurs will find alternative media through which to advertise their products. For example, if a product is banned on all TV channels, an entrepreneur can still advertise a product (globally) on the internet, which regulators do not control. Hence, not only will people within the restricted locality still be able to see those advertisements, but more people around the world can see them as well.
Second, it is important to question if, since regulators are so entrenched in the problem to which they are a solution, they unwittingly perpetuate the problem? This observation comes from ‘Shirky’s principle’, which states that “Institutions will try to preserve the problem to which they are the solution”. Further, regulatory economics tells us about ‘regulatory capture’, which happens when instead of protecting public interest the regulator is more keen to protect the commercial or political concerns of special interest groups. When the interests of a special group take priority over public interest, society is harmed and the purpose of having a regulator is defeated. So the government needs to put in place mechanisms to check if regulatory authorities are falling prey to ‘regulatory capture’.
Third, bans sometimes disrupt the economic activity of a nation. For instance, in March 2015, when India placed a ban on beef, it led to a loss of income for many people. Farmers found it difficult to find buyers for their cattle. Most of the farmers resorted to taking loans to cover their major expenses. It was also reported that many related industries were also severely affected due to this ban. Bans that are imposed without addressing the real social taboo or any due cost-benefit analysis can lead to losses than benefits.
Fourth, bans may also increase the cost of doing business and the cost of products in a country.
Bans have psychological repercussions as well, as described by Adam Grant (organisational psychologist and a professor at Wharton School of University of Pennsylvania), that can cause them to backfire. First, there is the issue of ‘reactance’. According to Grant, “When someone discourages you from doing something, you often feel that your freedom is being threatened, which motivates you to regain choice and control by doing exactly the opposite.”
Bans have an inbuilt self-destructive mechanism. Simply, if something is not allowed to an individual, it becomes all the more appealing to him or her. Hence, this then provokes people to doing it even more than before. For example, banning a book or a product can tremendously generate a great deal of free publicity.
Second, there is the issue of ‘rebound’, the idea that when someone warns you not to think of something or if your thoughts are being suppressed, your mind has a tricky way of thinking more about it. For instance, if someone asks a person particularly not to think about a certain term or an idea they tend to think more about it. A very simple daily life example of rebound effect is that of dieting. When a person is on a strict diet and try to suppress thoughts of sugary products like chocolates and candies, they end up consuming it even more. So ‘rebound’ actually makes a person more prone to thinking about that very thought which is prohibited.
Last, we may encounter a problem of ‘curiosity’. This is the principle of reverse psychology whereby people become intrigued when something is not allowed and therefore investigate. Adam Grant notes in one study, “psychologists asked 159 people if they had ever deliberately tried to get people to do something by recommending the opposite. More than two thirds generated a convincing example, and reported using reverse psychology an average of 1-2 times a month, with relatively little difficulty and high effectiveness.”
Most people react differently when bans and regulatory bans are enacted, and bans hardly fulfil their purpose. We saw an example of this when Indian films and TV shoes were banned in Pakistan . People could not resist the temptation and started watching shows and movies online, and piracy became even more rampant.
Bans are a growth industry in Pakistan; they give an illusion of power to people. Behind this illusion of power, regulators think that bans are going to solve problems. However, it is important that both economic and psychological effects are taken into account for bans to be productive. It is ill-planned bans that wreak havoc.
This opinion was published in The News on 07th August, 2016.