Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces. Deregulation does not mean elimination of laws against fraud, but eliminating or reducing government control of how business is done, thereby moving toward a more
free market.
Overview
The stated rationale for deregulation is often that fewer and simpler regulations will lead to a raised level of competitiveness, therefore higher
productivity, more
efficiency and lower prices overall.
thumb|left|As a result of deregulation, France Télécom operates phone booths in Wellington, New Zealand.
Deregulation is different from
liberalization because a liberalized market, while often having fewer and simpler regulations, can also have regulations in order to increase efficiency and protect
consumers'
rights, one example being
anti-monopoly legislation. However, the terms are often used interchangeably within deregulated/liberalized industries.
A parallel development with deregulation has been organized, ongoing programs to review regulatory initiatives with a view to minimizing, simplifying, and making more cost effective regulations. Such efforts, given impetus by the
Regulatory Flexibility Act of 1980, are embodied in the United States Office of Management and Budget's
Office of Information and Regulatory Affairs, and the United Kingdom's
Better Regulation Commission.
Cost-benefit analysis is frequently used in such reviews. In addition, there have been regulatory innovations, usually suggested by economists, such as
emissions trading. Academic research on wedding economic theory with regulatory activity continues.
One can distinguish between deregulation and
privatization. Privatization can be seen as taking state-owned service providers into the private sector. This can result in making the privatized enterprise more subject to market forces than was the state-owned entity. But the degree to which there is freedom to operate in the market and the extent of competitiveness in the market for the goods and services of the privatized entity or entities may depend on other measures taken in addition to privatization.
In some instances, partial privatisation may be selected, where provision of some portion(s) of the state-owned service are provided by private-sector contractors, but the government retains the capacity to self-operate at contract intervals, if it so chooses. An example of partial privatization would be some forms of
school bus service contracting, such as arrangements where equipment and other resources purchased with government capital funds are used by the contractor for a period of time in providing services, but ownership is retained by the governmental unit. In such situations the arrangement can be seen as a sort of contracting out of functions for which the government takes responsibility.
One influential measure of worldwide business regulations that has inspired mostly deregulation but also in some instances increased regulations is the
Ease of Doing Business Index.
By country
Argentina
Argentina underwent heavy economic deregulation,
privatization, and had a
fixed exchange rate during the
Menem administration (1989–1999).
Australia
Australia was an early leader in deregulation with a broad program of deregulation beginning in the early 1980s. Having announced a wide range of deregulatory policies,
Labor Prime Minister
Bob Hawke announced the policy of 'Minimum Effective Regulation' in 1986. This introduced now familiar requirements for 'regulatory impact statements' but it took many years before the policy was complied with by government agencies. Australia experienced deregulation of their labor market during the late 1980s under Hawke/Keating Labor government's. The country saw extensive deregulation of the labor market beginning in 2005 under
John Howard's
Liberal Party of Australia through their
WorkChoices policy. However it was reversed under the following Rudd Labor government. In 2007, the
Rudd Labor Government promised extensive deregulation, particularly in the business sector, appointing
Lindsay Tanner Minister for Finance and Business Deregulation.
Canada
Natural gas is deregulated in most of the country, with the exception of some Atlantic provinces and some pockets like Vancouver Island. Most of this deregulation happened in the mid 1980s.
The province of
Ontario began deregulation of electricity supply in 2002, but pulled back temporarily due to voter and consumer backlash at the resulting price volatility
. The government is still searching for a stable working regulatory framework.
The current status is a partially regulated structure in which consumers received a capped price for a portion of the publicly owned generation. The remainder of the price is market price based and there are numerous competitive energy contract providers. There is
price comparison service operating in these jurisdictions.
The province of
Alberta has deregulated their electricity provision. Customers are free to choose which company they sign up with, but there are few companies to choose from and the price of electricity has increased substantially for consumers because the market is too small to support competition.
Former Premier
Ralph Klein based the entire deregulation scheme on the Enron model, and continued with it even after the highly publicized and disastrous collapse of Enron because of illegal accounting practices.
Related Legislation
European Union
- Deregulation of the air industry in Europe in 1992 gave carriers from one EU country the right to operate scheduled services between other EU states.
Republic of Ireland
The taxi industry was deregulated in Ireland leading to an influx of new taxis. This was due to the price of a licence dropping overnight. The number of taxis increased dramatically.
United Kingdom
Since the
Conservative government of
Margaret Thatcher starting in 1979, the United Kingdom has pursued an extensive programme of
privatization, from
British Telecom (completed in 1984) to the
privatization of British railways. Privatization generally also included removing barriers to entry for private operators to compete, such as the
bus deregulation in Great Britain in 1986, and the progressive
privatisation of London bus services.
Since 1997 the
Labour governments of
Blair and
Brown have developed a programme of
better regulation. This has developed to include a general programme for government departments to review, simplify or abolish their existing regulations, and a "one in, one out" approach to new regulations. In 2006, new primary legislation (the
Legislative and Regulatory Reform Act 2006) was introduced to establish statutory principles and a code of practice.
The recent Labour governments have not privatised any public services, although some other government-owned businesses such as
QinetiQ have been privatised. But a great deal of infrastructure and maintenance work is now contracted to private enterprise under the
Public-Private Partnership, with competitive bidding for contracts within regulatory framework. This includes large projects such as building new hospitals for the
National Health Service, building new state schools, and maintaining the
London Underground.
Japan
Since the
Japanese asset price bubble of the 1990s collapsed in the early 2000s, the Japanese government has seen deregulation as an effective way to lift its economy, because it has a huge
budget deficit and cannot make a large
tax cut.
New Zealand
thumb|right|Since the deregulation of the postal sector, different postal operators can install mail collection boxes in New Zealand’s streets.New Zealand has had extensive deregulation since 1984. Originally instigated by the
Labour Party, it was later continued by the erstwhile opposition National Party. As a result, New Zealand, from having a reputation as an almost socialist country, is considered one of the most business-friendly countries of the world, next to Singapore. However, critics charge that the deregulation has brought little benefit to some sections of society, and has caused much of New Zealand's economy (including almost all of the banks) to become foreign-owned.
Russia
Russia went through wide-ranging deregulation (and concomitant
privatization) efforts in the late 1990s under
Yeltsin, now partially reversed under
Putin. The main thrust of deregulation has been the electricity sector (see
Unified Energy System), with railroads and communal utilities tied in second place. Deregulation of the natural gas sector (
Gazprom) is one of the more frequent demands placed upon Russia by the
United States and
European Union.
United States
History of regulation
Many industries in the
United States became regulated by the federal government in the late 19th and early 20th century. Entry to some markets was restricted in order to stimulate and protect the initial investment of private companies into infrastructure to provide public services, such as water, electric and communications utilities. With entry of competitors highly restricted,
monopoly situations were created, necessitating price and economic controls to protect the public. Other forms of regulation were motivated by what was seen as corporate abuse of the public interest by businesses already extant, such as occurred with the
railroads following the era of the so-called
robber barons. In the first instance, as markets matured to where several providers could be financially viable offering similar services, prices determined by competition were seen as more desirable than those set by regulatory process.
One problem that encouraged deregulation was the way in which the regulated industries often controlled the government
regulatory agencies, using them to serve the industries' interests. Even where regulatory bodies started out functioning independently, a process known as
regulatory capture often saw industry interests come to dominate those of the consumer. A similar pattern has been observed with the deregulation process itself, often effectively controlled by the regulated industries through lobbying the legislative process. Such political forces, however, exist in many other forms for other
special interest groups.
During the
Progressive Era (1890s–1920s),
Presidents Theodore Roosevelt,
William Howard Taft, and
Woodrow Wilson instituted regulation on parts of the American economy, most notably in regulating big business and industry. Some of their most prominent reforms are
trust-busting (the destruction and banning of
monopolies), the creation of
laws protecting the American consumer, the creation of a federal income tax (by the
Sixteenth Amendment; the income tax used a
progressive tax structure with especially high
taxes on the wealthy), the establishment of the
Federal Reserve, and the institution of shorter
working hours,
higher wages, better
living conditions, better rights and privileges to
trade unions, protection of
rights of
strikers, banning of unfair labor practices, and the delivery of more
social services to the working classes and
social safety nets to many unemployed workers, thus helping to facilitate the creation of a
welfare state in the
United States and eventually in most
developed countries.
During the Presidencies of
Warren Harding (1921–23) and
Calvin Coolidge (1923–29), the
federal government generally pursued
laissez-faire economic policies After the onset of the Great Depression, President
Franklin Roosevelt implemented many economic regulations, including the
National Industrial Recovery Act (which was stricken down by the Supreme Court), regulation of trucking, airlines and the communications industry, the institution of the
Securities Exchange Act of 1934, and the
Glass-Steagall Act, which was passed in 1933. These 1930s regulations stayed largely in place until
Richard Nixon's Administration. In supporting his competition-limiting regulatory initiatives President Roosevelt blamed the excesses of big business for causing an
economic bubble. However, historians lack
consensus in describing the causal relationship between various events and the role of government economic policy in causing or ameliorating the Depression.
Deregulation 1970-2000
Deregulation gained momentum in the 1970s, influenced by research at the
University of Chicago and the theories of
Ludwig von Mises,
Friedrich von Hayek, and
Milton Friedman, among others. Two leading ‘think tanks’ in Washington, the
Brookings Institution and the
American Enterprise Institute, were active in holding seminars and publishing studies advocating deregulatory initiatives throughout the 1970s and 1980s.
Alfred E. Kahn played an unusual role in both publishing as an academic and participating in the
Carter Administration's efforts to deregulate
transportation.
Transportation
The first comprehensive proposal to deregulate a major industry in the United States, transportation, originated in the
Richard Nixon Administration and was forwarded to Congress in late 1971. This proposal was initiated and developed by an interagency group in which the Council of Economic Advisors (represented by Hendrik Houthakker and Thomas Gale Moore), the White House Office of Consumer Affairs (represented by Jack Pearce), The Department of Justice, the Department of Transportation, The Department of Labor, and other agencies participated
The proposal addressed both rail and truck transportation, but not air carriage. (92d Congress, Senate Bill 2842) The developers of this legislation in this Administration sought to cultivate support from commercial buyers of transportation services, consumer organizations, economists, and environmental organization leaders. This 'civil society' coalition became a template for coalitions influential in efforts to deregulate trucking and air transport later in the decade.
After Nixon left office, the
Gerald Ford presidency, with the allied interests, secured passage of the first significant change in regulatory policy in a pro-competitive direction, in the
Railroad Revitalization and Regulatory Reform Act of 1976. President
Jimmy Carter devoted substantial effort to transportation deregulation, and worked with Congressional and civil society leaders to pass the
Airline Deregulation Act (October 24, 1978),
Staggers Rail Act (signed October 14, 1980), and the
Motor Carrier Act of 1980 (signed July 1, 1980).
These were the major deregulation acts in transportation that set the general conceptual and legislative framework, which replaced the regulatory systems put in place between the 1880s and the 1930s. The dominant common theme of these Acts was to lessen
barriers to entry in transport markets and promote more independent, competitive pricing among transport service providers, substituting the freed-up competitive market forces for detailed regulatory control of entry, exit, and price making in transport markets. Thus deregulation arose, though regulations to promote competition were put in place.
A series of substantial enactments were needed to work out the process of encouraging competition in transportation. Interstate buses were addressed in 1982, in the
Bus Regulatory Reform Act of 1982. Freight forwarders (freight aggregators) got more freedoms in the
Surface Freight Forwarder Deregulation Act of 1986. As many states continued to regulate the operations of motor carriers within their own state, the intrastate aspect of the trucking and bus industries was addressed in the
Federal Aviation Administration Authorization Act of 1994, which provided that "a State, political subdivision of a State, or political authority of two or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier." 49 U.S.C. 14501(c)(1) (Supp. V 1999).
Ocean transportation was the last to be addressed. This was done in two acts, the
Ocean Shipping Act of 1984 and the
Ocean Shipping Reform Act of 1998. These acts were less thoroughgoing than the legislation dealing with U.S. domestic transportation, in that they left in place the "conference" system in international ocean liner shipping, which historically embodied cartel mechanisms. However, these acts permitted independent rate making by conference participants, and the 1998 Act permitted secret contract rates, which tend to undercut collective carrier pricing. According to the
United States Federal Maritime Commission, in an assessment in 2001, this appears to have opened up substantial competitive activity in ocean shipping, with beneficial economic results.
The
Airline Deregulation Act is an example of a deregulatory act whose success has been called into question.
Energy
The
Emergency Natural Gas Act (signed February 2, 1977) was a mix of regulation in response to
OPEC price hikes and deregulation and the
1973 oil crisis in the U.S. As a result of this legislation
Natural Gas Choice programs have sprung up in several states. Natural Gas Choice programs allow residential and small volume natural gas users to select a natural gas supplier other than the traditional utility. There are hundreds of unregulated natural gas suppliers operating in the United States including Integrys Energy and
IGS Energy.
Communications
Communications in the United States (and internationally) are areas in which both technology and regulatory policy have been in flux. Rapid development of computer and communications technology – particularly the Internet – have increased the size and variety of communications offerings. Wireless, traditional landline telephone, and cable companies increasingly invade each others' traditional markets and compete across a broad spectrum of activities. The
Federal Communications Commission and Congress appear to be attempting to facilitate this evolution. In mainstream economic thinking, development of this competition would militate against detailed regulatory control of prices and service offerings, and hence favor deregulation of prices and entry into markets. On the other hand, there exists substantial concern about concentration of media ownership resulting from relaxation of historic controls on media ownership designed to safeguard diversity of viewpoint and open discussion in the society, and about what some perceive as high prices in cable company offerings at this point.
Finance
The
financial sector in the U.S. has evolved a great deal in recent decades, during which there have been some regulatory changes and the creation of new financial products such as the
securitization of loan obligations of various sorts and
credit default swaps. Among the most important of the regulatory changes was the
Gramm-Leach-Bliley Act in 1999, which repealed the parts of the
Glass-Steagall Act which had not already been repealed. This 1999 Act took down barriers to competition between traditional banks, investment banks, and insurance companies, and allowed firms to participate in all three markets in some circumstances.
Some have argued that this deregulation contributed to the
U.S. financial crisis of 2007-2009 and the
Global financial crisis of 2008-2009. However, others dispute this assertion, as the
Gramm-Leach-Bliley Act points out, and a lively debate on the causes of financial crisis is still under way as of August, 2009.
Related Legislation
Controversy
The deregulation movement of the late 20th century had substantial economic effects and engendered substantial contoversy. As preceding sections of this article indicate, the movement was based on intellectual perspectives which prescribed substantial scope for market forces, and opposing perspectives have been in play in national and international discourse.
The movement toward greater reliance on market forces has been closely related to the growth of economic and institutional
globalization between about 1950 and 2010.
For deregulation
Adam Thierer wrote, "The first step toward creating a free market in electricity is to repeal the federal statutes and regulations that hinder electricity competition and consumer choice."
Against deregulation
"Electricity deregulation was supposed to bring cheaper electricity prices and more choice of suppliers to householders. Instead it has brought wildly volatile wholesale prices and undermined the reliability of the electricity supply."
See also
