Dr Brian Benfield on the regulatory state: A protection racket and the rise of “new communism”

Key topics:Regulation now extracts wealth, prioritising procedure over productivity.Bureaucracy favours large firms; small businesses face administrative strangulation.ESG and compliance create ritualistic oversight, not real economic impact..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Brian Benfield*.In the contemporary Western world, regulation has ceased to function as a neutral instrument of public order. It has instead evolved into a quasi-mafioso system that extracts rents from the productive sector under colour of law. What presents itself as governance increasingly resembles a protection racket: an arrangement in which survival is contingent upon the payment of perpetual tribute to an unproductive bureaucratic class that bears no risk of its own yet exercises decisive control over those who do. The result is a novel form of collectivism, private ownership in name, bureaucratic command in practice. “New communism” administered through procedure rather than decree.Across much of the West and Africa, South Africa included, regulation has ceased to be a means of governance and has become an industry. Like many modern state organs, it no longer exists primarily to serve the public interest but to perpetuate itself. What began as a mechanism to ensure safety, fairness and trust has mutated into a system of institutionalised extraction, one that rewards procedural mastery over productive contribution and compliance over creativity.This transformation is not benign. Regulation now functions as a self-interested enterprise, complete with career ladders, revenue streams and auxiliary markets. A sprawling ecosystem of compliance consultancies, auditing firms, certification bodies, reporting platforms and advisory panels has emerged, supported by professional associations, glossy conferences, newsletters and training programmes. Their prosperity depends not on the success of the real economy, but on its encumbrance. We have arrived at the extraordinary position where it is frequently more profitable to audit an enterprise than to operate one..Read more:.Creating vs extracting wealth – a call to rethink economic priorities .This inversion of economic logic marks a civilisational failure. Production, once the foundation of prosperity, is increasingly treated as a suspicious activity requiring prior authorisation from individuals who have never produced a thing themselves. Permission to act must be secured from those whose livelihoods depend upon delay, complexity and perpetual revision. Motion is mistaken for progress; obstruction is dignified as “oversight”.There is a bitter historical irony here. The dense bureaucratic controls, suffocating red tape and extractive regulatory regimes once imposed by colonial powers upon their dependencies, explicitly designed to channel wealth outward while suppressing local initiative, have now been internalised. These technologies of domination have flourished not only in former colonies such as Canada, Australia, New Zealand and South Africa, but have metastasised back into Europe and the United Kingdom. Former colonisers now govern themselves as they once governed their colonies, through permits, licences, inspections, audits, site visits, mandatory intermediaries and endless procedural hurdles whose cumulative effect is economic disruption and exhaustion.The Roman historian Tacitus observed that “the more failed the state, the more numerous the laws.” The modern regulatory apparatus vindicates this insight. Each new regulation generates guidance notes, interpretive memoranda, standards, best-practice frameworks, delegated actions and enforcement mechanisms. Complexity multiplies not because reality demands it but because institutional incentives reward expansion. The more rules there are, the more fees, levies and penalties follow, direct and indirect, explicit and hidden, until compliance itself becomes another form of taxation. This tax is paid not only to the treasury, but to a vast para-state economy of approved compliance service providers.Large corporations understand this dynamic well. For all their public protestations, regulation is their ally. They possess the legal teams, compliance departments and lobbying capacity required to absorb and shape regulatory burdens. For them, regulation functions as a protective moat. For small and medium-sized enterprises, however, it is strangulation. Start-ups, family businesses and independent entrepreneurs are crushed not by market failure, but by administrative attrition. Competition is not prohibited; it is regulated out of existence.This dynamic is particularly visible in the rise of modern “values-based” regulation. Under banners such as sustainability, inclusion and social responsibility, companies are compelled to expend billions on reporting regimes and data-collection systems, notably in areas such as anti-money-laundering compliance, whose primary output is ever more data and paperwork, with little demonstrable economic or social value.Environmental, social and governance (ESG) mandates require exhaustive disclosures, third-party verifications and standardised narratives that privilege appearance over impact. Capital and effort that might otherwise be directed toward research, innovation, productivity, job creation and growth are diverted into the hands of a “green” auditing cartel that trades in moral indulgences rather than measurable results. This is not environmental stewardship, nor responsible corporate citizenship. It is ritual: the bureaucratic analogue of medieval indulgence-selling, offering absolution through documentation rather than achievement. In the process, genuinely transformative solutions, cleaner production methods, product innovations, resilient supply chains, are denied full resources.The state thus demands virtue signalling rather than virtue, compliance rather than competence.The mentality that sustains this system is profoundly detached from material reality. Few of its architects have ever had to meet a payroll, manage a supply chain or make decisions under genuine personal commercial risk. To them, electricity comes from the socket, milk from the supermarket and prosperity from procedure. Economic activity is abstract, while regulation is tangible. Control feels like competence.This outcome is consistent with long-established economic theory. In 1971, George J. Stigler demonstrated that regulatory bodies do not primarily act in the public interest. Instead, they evolve to maximise their own budgets, influence and institutional survival, often aligning with large firms. Regulation is thus shaped by internal incentives rather than social welfare. Unsurprisingly, regulatory systems tend rapidly toward self-expansion and self-justification, regardless of measurable public benefit.The consequences are now plainly visible. Industrial capacity across much of the West is in long-term decline, with production migrating to jurisdictions where administrative burdens are lighter. Germany’s stagnation, marked by declining industrial output, firm closures and eroding competitiveness, illustrates the cost of regulatory overreach compounded by self-inflicted energy insecurity. Western imports of machinery, electronics and consumer goods now come from countries whose producers operate under far less performative and punitive regulatory regimes. The parasitic class expands while the productive base contracts.Compounding the problem, the common-law tradition of reasonableness and context has been displaced by exhaustive rulebooks administered by unelected officials. Discretion has given way to checklists and judgment to process. This enables what has become known as “process crime”, the criminalisation of procedural missteps irrespective of intention or outcome. It is cheaper and safer for regulators to prosecute paperwork errors than to risk humiliation in court by alleging substantive wrongdoing.Like the headmaster who boasts of a rising tally of flogged pupils as evidence of improved discipline, fines and licence revocations are not signs of regulatory success but admissions of failure..Read more:.Financial guidelines to build and protect your wealth.The cumulative effect is creeping collectivism. Ownership remains formally private but effective control is exercised through regulatory command. Markets are not abolished but confined within ever-narrowing procedural corridors. This is not classical socialism but bureaucratic domination, a “new communism”.Regulation must be returned to justifying itself through demonstrable public benefit. Production, trade and finance must be liberated from the regulatory presumption of guilt that now surrounds it.No society can regulate itself into prosperity or innovation. Until this reality is confronted, we shall continue to be systematically impoverished by those who confuse control with competence and paperwork with productivity. As Stigler warned more than half a century ago, bureaucratic systems tend toward self-preservation, not public benefit. Unless regulatory institutions are brought into alignment with that truth, economic decline will continue, administered efficiently, reported meticulously and justified procedurally..*Dr Brian Benfield, retired professor, Department of Economics, University of the Witwatersrand, is a Senior Associate and Board member of the Free Market Foundation.

Dr Brian Benfield on the regulatory state: A protection racket and the rise of “new communism”

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