Billions of blistering barnacles

Nice term, isn't it? Regulatory accretion. Like the barnacles that build up on a hull, it causes drag and corrosion on the ship of commerce.

Well, get used to it.

For several years now, even Americans understood their legislative response to the excesses of the dot-com boom was an overreaction. The worst excesses, like WorldCom, were perfectly soundly dealt with using existing fraud legislation. Burdening the rest of the economy, which for the most part was guilty of nothing more than taking risk, with layer upon layer of cumbersome and costly regulation, achieved nothing more than causing drag and prolonging the bust. Sarbanes-Oxley did nothing more than enriching the big five - oops, wait, big four, thanks to the collapse of the firm that courts said did nothing wrong - audit firms, and provide a sales pitch to companies that provide software and systems that help others comply with all this new regulation.

So the rest of the world sat around, hoping that the fervour and panic that made politicians take action to “restrain the greed of Wall Street” would fade away.

Greed is how politicians describe risk-taking, risk management, and selling risk as financial instruments. Greed. It's what makes a farmer invest money in seed and equipment, hoping not only that the weather this season is good, but that the price of his crop will be sufficient, come harvest time, to make a year of work worthwhile. Greed. What makes that same farmer take out insurance against bad weather, and makes the insurance company charge him a premium based on their own risk analysis. Greed. Without which no profit is, in fact, possible, because without which nobody would want to take any risk whatsoever.

This time again, politicians will fail to admit they were largely responsible for the financial crisis. That the fact that banks used cheap capital to issue loans to people who couldn't afford them might have something to do with the fact that a government-appointed central banker controls the price of credit, and there are laws “encouraging” (read: requiring) banks to help achieve the politicians' promises of putting even poor people in houses of their very own.

So, instead of a relaxation of the regulatory overreaction, expect a new raft of regulation aimed at preventing companies from taking risk, or at least forcing them to document every nod and wink in this process. Expect new rules to ban or restrict financial instruments designed to spread and mitigate risk, or to lock in profits by packaging and selling that risk to those with the appetite for higher risk, and higher rewards. Politicians don't understand those instruments, so, therefore, (their stunted reasoning goes) they can only serve greedy investors, and greed is bad.

I'm picking on America here, because it has been more in the news, and its two equally clueless candidates for executive office are the ones making the headlines. (For what it's worth, the only real difference between the two, economically, is a matter of degree: neither grasp the situation, both blame Wall Street greed, but one has more interventionist and socialist instincts than the other; one is more likely - worryingly for Africa - to go isolationist and protectionist in his response.)

But let's not forget Europe, where the scale of the bailouts is several times larger, as a share of GDP, and where bureaucracy and regulation is second nature. They're unlikely to realise, any time soon, that their protectionist super-state is a drag on their own GDP growth, productivity, and employment, and is a threat to the trade and economic growth of the rest of the world.

Greed is how politicians describe risk-taking, risk management, and selling risk as financial instruments.

Ivo Vegter, freelance journalist and columnist

So expect more regulation. And because regulations are created faster than they expire (if they expire at all), expect this regulation to accrete on the hull of the ship of commerce, and cause more drag on its performance.

It would be nice to think that we might be immune from it, but we aren't. Regulations tend to get exported to innocent bystanders, to countries that had nothing to do with the economic crisis at all.

Many corporations are global, and have to comply with regulation in all their jurisdictions. Many trade agreements include clauses that export the legislative rules of Europe or the US to their trading partners. First-world “best practices” get coded into software used around the world. Investors lump emerging markets together as high-risk destinations for capital, and flee from them indiscriminately whenever their risk profile becomes too high for their taste.

So if you were waiting to invest money in software and systems that improve your ability to comply with the onerous rules and regulations politicians like imposing on free people, to prevent them from taking risks the politicians call “greed”, wait no more.

You might have delayed, hoping that the worst regulatory excesses, like Sarbox, would go away eventually, but they won't. And unlike with the hull of a ship, this accretion cannot simply be cleaned by putting your boat in the dry-dock and taking a hammer and chisel to it. It will only get thicker, and your ship will only get slower.

In fact, you might as well exploit it. Next time you want to sell the board a new system to automate business processes, or service-enable applications, or manage and provision IT resources, or whatever it is that you want to do, put the term “regulatory accretion” in your presentation.

“Sorry boss, it sucks, but we have to do this. Regulatory accretion, you know, it's only going to get worse. Now please sign my budget, will you?”