Last week, my fellow trustee Mike Even responded to my three-part series with his thought-provoking piece, A capitalist's view of FCI. Mike and I have known each other for over 35 years, developing a great relationship despite our occasional differences. Indeed, over the years, we've discovered we share similar views on the role of government and the benefits of a capitalist society.
The challenge of excessive regulation
In his piece, Mike identifies himself as a libertarian, 'believing that government involvement in the economy should be minimised'. As a fellow capitalist, I share many of his concerns about excessive regulation.
The administrative landscape in the US offers striking examples of regulatory inefficiency: building a new bridge often requires separate permits from multiple agencies including the Department of Transportation, the Environmental Protection Agency (EPA), Coast Guard, and state/local authorities.
Renewable energy projects face overlapping jurisdictions between the Bureau of Land Management, Fish & Wildlife, and state agencies. Chemical facilities must comply with EPA, the Occupation Safety and Health Administration, and the Department of Homeland Security regulations, often with redundant reporting requirements. The list goes on.
The case for balanced oversight
However, while acknowledging these inefficiencies, I believe government has a crucial role in addressing the existential challenges that unfettered capitalism can create – particularly those broad systemic issues that markets alone cannot solve.
Take pollution as a classic example: individual companies have little economic incentive to reduce their emissions without regulation, as the costs are borne by society at large while the benefits of cheaper production accrue to the company. This is precisely where government intervention becomes essential.
In the second part of my series, I introduced the concept of a 'sustainable economy' framework. This framework emphasises that achieving social cohesion, long-term prosperity for all, and environmental health will result in a stronger economy that mitigates major systemic risks, ultimately leading to better investment outcomes.
Creating a level playing field
Government regulation, when properly implemented, helps level the playing field for all economic actors. Consider workplace safety: Regulations protect companies that prioritise worker safety from unfair competition by those that don't implement proper safety standards.
Similarly, companies with responsible environmental policies often incur additional costs that could put them at a competitive disadvantage compared to those that ignore environmental stewardship.
Capitalism's Double Edge
To be clear, capitalism has been a powerful force for good. It has contributed to longer, healthier, and more prosperous lives, enabling unprecedented human flourishing. But without proper guardrails, it can exacerbate serious societal challenges like climate change, wealth inequality, and social unrest. These issues aren't just social concerns – they represent significant systemic risks to long-term investment returns.
Finding the Right Balance
The key lies in finding the right balance. While we must address the burden of conflicting and duplicative regulations that discourage innovation and place excessive administrative burdens on companies, we shouldn't abandon the principle of thoughtful regulation altogether. Instead, we should focus on creating clear, consistent 'rules of the road' that ensure fair competition while promoting the goals of a sustainable economy.
Aligning with faith-consistent investing
This approach aligns perfectly with faith-consistent investing principles. By supporting regulations that promote transparency, fairness, and long-term sustainability, we create conditions where companies competing on innovation and efficiency must do so within a framework that protects broader societal interests. This not only serves our faith values but also helps create a more resilient and sustainable economic system.
Conclusion
While Mike and I might differ on the optimal level of government involvement, we agree on the fundamental goal: creating an economic system that delivers strong returns while promoting the common good. The challenge lies not in choosing between regulation and free markets, but in finding the right balance that allows capitalism to thrive while addressing its inherent limitations. This balance is essential for faith-consistent investors seeking to generate sustainable returns while upholding their values.