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Deregulation Essay, Research Paper

Pg. 1 Deregulation

The twentieth century will be known to future economists as the era that gave birth to a new world economic thinking which gave way to massive modern, technological innovations and changes. These massive changes have created a highly developed and mobile world economy where there has been a constant power struggle between the sate and market. The government has intervened in the market with regulations as a means of exerting control and influence over the economic behaviour of businesses and individuals. As we head into the next millennium boundaries are being broken down as government regulations are under critical review for enslaving the economy from further progress. As a great economist of this century once said, Private unregulated monopoly is the lesser of evils when compared to government regulation. Deregulation will cause a shift in power from the state to the marketplace resulting in greater innovation, competition and freedom in the economy. This in turn will play a pivotal role in the development of a new economy.

What is regulation?

Regulation as defined by the Economic Council of Canada is the government imposition of rules and controls designed to direct, restrict and change the economic behaviour of individuals and business and which are supported by penalties for non-compliance.

The primary concerns for which these regulations are imposed are to protect the public and consumer interests. We may not be aware of it but all of our lives are governed by boundaries and regulations that affect us on a daily basis ranging from random purchases of goods and services to the advertisements we come across on television. Examples of how these regulations affect us are the prices of products we purchase, minimum wage regulations and restrictions on harmful pollutants. Large businesses and industries are greatly affected by regulations as they must comply with laws and are required to obtain licences and permits in running their business. These industries are regulated by laws, which prohibit manipulation of prices, health standards that must be met and prohibitions of immoral practices in monopolising industries. Large companies such as Bell, Microsoft and Nike have immense power over their competitors and must be regulated to prevent any foul play. However over the last two decades there has been a trend towards the deregulation of many industries sparked by the Reagan administration in the U.S. As the U.S. economy opened up Canada followed the trend and opened up many of their industries as well.

Costs of Regulation

Up until the 70 s there was the ideology that government should intervene in the economy however as regulations came under review from economists the ideology that the market would handle market imperfections became much more accepted. It became apparent that regulations served special interest groups lobbying government officials more than it did the public interest. The basis of regulations was to promote economic development, equity and fairness and the function of affordable universal services however regulations were critiqued for not doing as an efficient job as it should be doing. Instead regulations led to persistent inflation and oil price hikes and was said to not only fix prices but drive them up as well. Regulations were also criticised for its inability to keep up with technological change and pointless regulations that were outdated and virtually obsolete because of the vast modern and technological changes. Large companies such as Bell and AT&T already had the majority of the market share in their industries and so they had little incentive to improve product quality or customer service. They became lazy and put little money into added costs of research and development of new technologies. It seemed as though the only winners in regulation were these big companies who had few companies to compete with, secure profits and stable outputs. Smaller firms that wished to enter the industry did not have a chance in competing with these large established firms which have the complete support of the state. Basically these regulations were restricting any growth within the industries from a technological perspective and at the same time neglecting the interests of the consumers from their lack of communication with the needs of the public. This in turn created other negative aspects to the economy where employees were ineffective and unmotivated in doing their jobs and where whole industries were caught in a standstill with no competition to drive them to further progress.

Benefits of Deregulation

Deregulation was the answer to the problem of unmotivated industries and so the governments made revisions to old regulations and completely abolished others. This led to a much open market mainly in the transportation industry and more recently the telephone industry. Today electricity is in the process of being deregulated as well, as it is apparent from the TV commercials for Hydro Ontario already being aired. The government s role suddenly decreased dramatically giving more power to the market to oversee that prices did not rise. U.S. Secretary of the Treasury Robert Rubin once said, Open capital markets create tremendous opportunity and benefits. There were benefits from this shift to the market as the belief was that the market would drive down prices as a result of competition amongst companies who would be scrambling to achieve lower prices for better quality and service. Companies would influence greater technological innovation and motivate their human resources to find ways in improving the company as well. The deregulation of the airline industries is a good example of how competition brought about changes in price. The intense competition brought about many bankruptcies, as only the most efficient companies were able to

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