Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of government regulation, and the risk that regulatory agencies would be controlled by the regulated industry to its benefit, and thereby hurt consumers and the wider economy.
Economic regulations were promoted during the Gilded Age, in which progressive reforms were touted as necessary to limit externalities like corporate abuse, unsafe child labor, monopolization, pollution, and to mitigate boom and bust cycles. Around the late 1970s, such reforms were deemed as burdensome on economic growth and many politicians espousing neoliberalism started promoting deregulation.
United States[edit]
History of regulation[edit]
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. Some of the examples of deregulation in the United States in the setting of industries are banking, telecommunications, airlines, and natural resources.[8]
During the Progressive Era (1890s–1920), 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 D. Roosevelt implemented many economic regulations, including the National Industrial Recovery Act (which was struck 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.[9] 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[edit]
Deregulation gained momentum in the 1970s, influenced by research by the Chicago school of economics and the theories of George Stigler and others.[10] The new ideas were widely embraced by both liberals and conservatives. 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. Cornell economist Alfred E. Kahn played a central role in both theorizing and participating in the Carter Administration's efforts to deregulate transportation.[11]
Transportation[edit]
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.[12] This proposal was initiated and developed by an interagency group that included the Council of Economic Advisors (represented by Hendrik Houthakker and Thomas Gale Moore[13]), White House Office of Consumer Affairs (represented by Jack Pearce), Department of Justice, Department of Transportation, Department of Labor, and other agencies.[14]
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.[15] 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.
U.S. President Ronald Reagan campaigned on the promise of rolling back environmental regulations. His devotion to the economic beliefs of Milton Friedman led him to promote the deregulation of finance, agriculture, and transportation.[16] 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 questioned. Since deregulation, real prices for air travel has fallen by more than half, and travellers have more options; but there have been questions about disruptions, employee pensions and the lack of small city service.[17][18]
Energy[edit]
The Emergency Petroleum Allocation Act was a regulating law, consisting of a mix of regulations and deregulation, which passed in response to OPEC price hikes and domestic price controls which affected the 1973 oil crisis in the United States. After adoption of this federal legislation, numerous state legislation known as Natural Gas Choice programs have sprung up in several states, as well as the District of Columbia. Natural Gas Choice programs allow residential and small volume natural gas users to compare purchases from natural gas suppliers with traditional utility companies. There are currently hundreds of federally unregulated natural gas suppliers operating in the US. Regulation characteristics of Natural Gas Choice programs vary between the laws of the currently adoptive 21 states (as of 2008).
Deregulation of the electricity sector in the U.S. began in 1992. The Energy Policy Act of 1992 eliminated obstacles for wholesale electricity competition, but deregulation has yet to be introduced in all states.[19] As of April 2014, 16 U.S. states (Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, and Texas) and the District of Columbia have introduced deregulated electricity markets to consumers in some capacity. Additionally, seven states (Arizona, Arkansas, California, Nevada, New Mexico, Virginia, and Wyoming) began the process of electricity deregulation in some capacity but have since suspended deregulation efforts.[20]
Communications[edit]
See also: Telecommunications Act of 1996 and Concentration of media ownership
Deregulation was put into effect in the communications industry by the government at the start of the Multi-Channel Transition era.[21] This deregulation put into place a division of labor between the studios and the networks.[22] Communications in the United States (and internationally) are areas in which both technology and regulatory policy have been in flux. The 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 other's 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.[23] 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[edit]
The financial sector in the U.S. has seen considerable deregulation in recent decades, which has allowed for greater risk taking. The financial sector used its considerable political sway in Congress and in the U.S. political establishment and influenced the ideology of political institutions to press for more and more deregulation.[24] Among the most important of the regulatory changes was the Depository Institutions Deregulation and Monetary Control Act in 1980, which repealed the parts of the Glass–Steagall Act regarding interest rate regulation via retail banking. The Financial Services Modernization Act of 1999[25] repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.
Such deregulation of the financial sector in the United States fostered greater risk taking by finance sector firms through the creation of innovative financial instruments and practices, such as the creation of new financial products, including securitization of loan obligations of various sorts and credit default swaps.[26] The greater risk taking caused a series of financial crises, including the savings and loan crisis, the Long-Term Capital Management (LTCM) crisis, each of which necessitated major bailouts, and the derivatives scandals of 1994.[27][28] These warning signs were ignored as financial deregulating continued, even in view of the inadequacy of industry self-regulation as shown by the financial collapses and bailout. The 1998 bailout of LTCM sent the signal to large "too-big-to-fail" financial firms that they would not have to suffer the consequences of the great risks they take. Thus, the greater risk taking allowed by deregulation and encouraged by the bailout paved the way for the Financial crisis of 2007-2008.[29][28]
Related legislation[edit]
1976 – Hart-Scott-Rodino Antitrust Improvements Act PL 94-435
1977 – Emergency Natural Gas Act PL 95-2
1978 – Airline Deregulation Act PL 95-50
1978 – National Gas Policy Act PL 95-621
1980 – Depository Institutions Deregulation and Monetary Control Act PL 96-221
1980 – Motor Carrier Act PL 96-296
1980 – Regulatory Flexibility Act PL 96-354
1980 – Staggers Rail Act PL 96-448
1982 – Garn–St. Germain Depository Institutions Act PL 97-320
1982 – Bus Regulatory Reform Act PL 97-261
1989 – Natural Gas Wellhead Decontrol Act PL 101-60
1992 – National Energy Policy Act PL 102-486
1996 – Telecommunications Act PL 104-104
1999 – Gramm-Leach-Bliley Act PL 106-102
https://en.wikipedia.org/wiki/Deregulation
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