The Limits of Economism in Controlling Harmful Corporate Conduct

Abstract

Economism is seen as having a number of disadvantages compared with legalism as the preferred model for regulating hazardous industrial practices such as pollution. Economism forces public policy to react retrospectively to hazards when efforts could be made to prevent the hazard before it occurs. Economism engenders a moral relativism which weakens the moral force of law; it makes detection and deterrence more difficult than under legalism. The regulatory approaches of economism may involve reduced cost burdens on business but lesser predictability of those costs. Economism does not relieve business of the burdens of government inspections; it simply replaces technical inspectors with tax investigators because taxes on hazards can easily be evaded. Legalism, unlike economism, is not wedded to the assumption that business enterprises always behave rationally. In practical terms it is impossible to calculate economically optimal levels of taxes on social harm. Even if it were possible, the costs of making such calculations would be prohibitive. It is concluded that economistic strategies have quite limited, though important, roles in business regulation.