The myth of Regulation ensuring Quality

KST's question is one that echoes what most people have come to believe. That unregulated supply into a market would translate into a drop in quality. Nothing can be farther from the truth. Before I reason why, let me point to another fallacy.

Many, including the accomplished Mr. Sreedharan (of Delhi Metro fame) seem to think the glory years in India were the yesteryears. That in the past, regulated supply in education ensured we produced the finest engineers and managers. Really? If the yesteryears with a handful of government engineering and management colleges did produce fine quality graduates, how come you and I as consumers lived with the most pathetic goods and services ever produced? Remember those times when nothing worked. The cars rattled till your bones were rearranged, the scooters needed all kinds of nudges and pushes so they would spurt to feeble life, the roads travelled on turned into flowing gutters at the first rain...., the list was endless. Remember? How come these brilliant engineers and management guys never made anything that worked?

Tell you what, those were indeed depressing times when we consumers only got lousy deals. So much so I remember when someone travelled abroad, others would eagerly await their return so they could get their hands on better quality 'foreign' stuff. But if you look around now, you will know the current times we live in is so much better. Supply into the marketplace has increased and so has quality. No thanks to the IITs or the IIMs. Instead I'd say thank the policy of LPG (liberalisation, privatisation & globalisation), something that we were dragged to, screaming and kicking. Of course, thank competition which was the real outcome.

Its important to note supply regulation doesn't need government intervention. The markets will regulate. And if they aren't currently regulating the number of engineers being churned out, don't blame the supplier, blame the buyer who's still buying because he doesn't need 'rocket science quality'. After all the recruited graduate engineers will probably will be doing and testing codes. And that I believe isn't rocket science. Sure, corporations will lament quality. But what they are really hemming and hawing about is the training costs they incur in making the engineer job ready. They would rather have had ready made engineering graduates who can get onto the software assembly line, pronto.

Tell you what, the supply side is easing up in India. And that easing up is market driven, which in turn will automatically send signals to suppliers to ease up on the quantity being churned out. Sure, there will still be those who won't take the cue, mass-producing more graduates. But neither regulation nor sympathy is called for. This is classic marketplace activity. Some will burn when others will rise. In the end the markets (read, buyers) will decide.

Amen to that.


1) Good insights Prof.I believe it takes good amount of time for building a world class institute. I really hope that the market dynamics takes care of the quality/quantity.
2) Many Engineering seats (5,30,000) and MBA seats (60,000) remained vacant! ( Is it that the managements have deep pockets (black money) or am I missing something!?
Prof.Ray Titus said…

You're still missing the point. When you say you hope market dynamics ensure quality, I hope you don't mean quality as defined by you. I hope you mean quality as defined by the buyer!

Its like in the case of cars. M800 is a quality product to its buyer. So is the Merc, to its buyer! Sure all of us want Merc quality all the time, but can we all pay premium prices for Merc-like quality? The answer is we can't, and so we end up buying an 800 which is quality too.

Of course quality can always get better. But for that we do not need regulators, we need more competition among sellers. For more competition we need more players in the market, which can only happen if regulators are disbanded.

As for the article, that's exactly my point. A non-buy by consumers is the best regulator to sellers!
Yup, got it Prof. Thanks for the clarification.

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