The aim of economic regulation should be the same in all sectors: to facilitate fair competition among players or, where natural monopolies exist, to ensure fair pricing and service levels. Greater competition means stronger productivity growth, which in turn means a faster-growing economy and more wealth to share. Yet governments everywhere struggle to get regulation right.

Why regulate at all? First, market economies can't function properly without rules: property rights (including trademarks and patents that protect innovators) underpin transactions, and antitrust laws safeguard fair competition. The painful transition away from Communism in the former Soviet Union is a particularly vivid example of the need for a basic legal framework. Second, regulation is necessary to mitigate broader market failures in generally competitive industries—for example, to protect consumers from abusive practices, to introduce and maintain safety standards, to protect vulnerable workers, and to control environmental pollution. Moreover, some forms of regulation (such as orphan-drug rules for rare diseases) aim to force or encourage businesses to meet the vital needs of unprofitable customers. Third, regulatory intervention is vital in supporting competition and so promoting the welfare of consumers in their dealings with electricity, telecommunications, and other network industries that tend to monopoly because...