October 8, 2012 1:34PM

Opting Out of the Regulatory State

What do you do when your economy is suffocating under too many regulations, but strong opposition prevents you from far‐​reaching liberalization? The British finance minister George Osborne has had an interesting idea regarding Britain’s onerous labor market regulations. As he said to the Conservative Party conference in Birmingham earlier:

Today we set out proposals for a radical change to employment law. It’s a voluntary three way deal. You the company: give your employees shares in the business. You the employee: replace your old rights of unfair dismissal and redundancy with new rights of ownership. And what will the Government do? We’ll charge no capital gains tax at all on the profit you make on your shares. Zero percent capital gains tax for these new employee‐​owners. Get shares and become owners of the company you work for. Owners, workers, and the taxman, all in it together.

Seems like a potentially rewarding policy innovation. Much will depend on how many people and companies actually opt out of this particular component of the regulatory state, and what, if any, impact will that have on making the British labor market more efficient.