From Wikipedia, the free encyclopedia

Deregulation, a term which gained widespread currency in the period 1970-2000, can be seen as a process by which governments remove, reduce, or simplify restrictions on business and individuals with the intent of encouraging the efficient operation of markets.

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.

Deregulation is different from liberalization because a liberalized market, while often having less and simpler regulations, can also have regulations in order to increase efficiency and protect consumer's rights, one example being anti-trust legislation. However, the terms are often used interchangeably within deregulated/liberalised 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 Kingdon'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 privatization 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.

Contents 1 Case study: United States 1.1 History of regulation 1.2 Deregulation 1970-2000 2 Deregulation by area 2.1 Argentina 2.2 Australia 2.3 Canada 2.4 European Union 2.5 Japan 2.6 New Zealand 2.7 Russia 2.8 United Kingdom 2.9 United States 2.9.1 Related Legislation 2.10 References 3 See also 4 External links

The experience of the United States offers a broad view of deregulation, as many service industries were effectively deregulated beginning in 1971. In some sectors, such as transportation, such deregulation is widely seen as having major economic benefits (See Departent of Transportation Study in Notes). In the Savings and Loan area significant problems ensued, and re-regulation was taken. In the electricity area, the process is mixed and incomplete and was for a time attended by a malfunction in the California energy market.

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 multiple providers could be financially viable offering similar services, prices determined by competition were seen as more favorable 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 sees 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.

'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.

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. (Rose, Seely and Barrett, "The Best Transportation System in the World", University of Ohio State Press, 2006, pp 152-157 (citing national archive White House files)) The proposal addressed both rail and truck transportation, but not air carriage. (92d Congress, Senate Bill 2842) This Administration sought to cultivate support from commercial buyers of transportation services, consumer organizations, economists, and environmental organization leaders.(Rose, Seely and Barrett, pp 154-156) 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, Pub. L. 94-210. 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. They set the general conceptual and legislative framework which has replaced the regulatory systems put in place between the 1887 and the 1930s. The dominant common theme of these Acts, as evidenced in the articles individually treating these Acts in this encyclopedia, 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 the term 'deregulation' arose, though regulations to promote competition were put in place.

A series of enactments were needed substantially 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 2 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 steps, 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 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. The Airline Deregulation Act is also a notable example. It sought to reintroduce competitive market forces to the heavily regulated commercial airline industry. Subsequent deregulation has had mixed results.

Negative outcomes of some forms of deregulation (such as the failure of the Savings and Loan sector of the U.S. during the 1980s following the Depository Institutions Deregulation and Monetary Control Act PL 96-221, have led to limited re-regulation. More broadly, institutionalized means of reviewing regulations were developed in the latter decades of the 20th century, as noted in the lead paragraphs to this article.

Communications in the United States (and internationally) is an area 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. One can see an emerging era in which wireless, traditional landline telephone, and cable companies increasingly invade each others’ traditional markets and compete across a broad spectrum. 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’ as to prices and entry into markets. See for this line of thinking Crandall, “Competition and Chaos – U.S. Telecommunications Since the 1996 Telecom Act”, Brookings Institute, 2005. 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. See for further development of this area Telecommunications Act of 1996 and Concentration of media ownership.

Argentina underwent heavy economic deregulation^{[citation needed]}, privatization, and had a fixed exchange rate during the Menem administration (1989–1999). Critics argue that these policies, implemented under advice of international organizations like the IMF and the WTO, eventually produced massive de-industralization and unemployment, and became unpopular after the politico-economic collapse of 2001.^{[attribution needed]} Others argue that high corruption flawed these policies in practice and that continued overspending by the government, while causing a temporary 'economic miracle', inevitable in the end caused a collapse.

Australia was an early leader in motor transport deregulation, lifting heavy taxes on road transport which allowed expansion of motor carriage and more rail-motor carrier competition. Australia experienced deregulation of their labour market during the late 1980s under Hawke/Keating Labor government's. Since then the country has had extensive deregulation of their labour market since 2005. This process was made under John Howard's Liberal Party of Australia In 2007, the Rudd Labor Government promised extensive deregulation, particularly in the business sector, even appointing Lindsay Tanner Minister for Finance and Business Deregulation.

The province of Ontario attempted to in 2002 but since pulled back due to voter and consumer backlash at the resulting price chaos.^{[citation needed]} The government is still searching for a stable working regulatory framework. See Ontario electricity policy for more.

The province of Alberta has deregulated their electricity provision. Customers are free to choose which company they sign up with.

• 2003 Corrections to EU directive about software patents

Since the economic bubble in 1990s collapsed, the Japanese government has seen deregulation as an effective way to lift its economy because it has a huge deficit and cannot make a large tax cut.

New Zealand has had extensive deregulation since 1984. It was instigated by the Labour Party.

See also: Economy of New Zealand

Russia has been going through wide-ranging deregulation (and concomitant privatization) efforts since late 1990s. The main thrust of deregulation has been the electricity sector (see Unified Energy System), with railroads and communal utilities tied in the second place.^{[citation needed]} Deregulation of natural gas sector is one of the more frequent demands placed upon Russia by the United States and European Union.

The United Kingdom has developed a programme of better regulation since 1997. 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 is proposed (a Legislative and Regulatory Reform Bill) which is intended to establish statutory principles and a code of practice.

Deregulation was a major trend in the United States in the last quarter of the twentieth century.^{[citation needed]} A number of major deregulation initiatives were passed. Some of these were withdrawn quickly (but not quickly enough to avoid major problems^{[citation needed]}), including the deregulation of savings and loans. American savings banks, which were permitted to lend unfettered, had their depositors funds insured by the federal government, creating a moral hazard. The California electricity crisis was precipitated by price manipulations by companies such as Enron after energy industry deregulation in 1996, it is noteworthy that Californian electric deregulation did not result in a free market but a rule free system with a fixed objective of generating power at a price determined by the Californian government rather than supply and demand^{[citation needed]}. Other legislation has been considered more widely successful, including deregulation of transport, telecommunications, and the gas market. One of the most controversial sets of decisions has to do with Concentration of media ownership, resulting from decisions from 1996 to date relaxing controls on such concentration.

• 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
• 2002 - Ontario Bill 210- Electricity Supply, Pricing and Conservation Act

• Barnum, John W. "What Prompted Airline Deregulation 20 Years Ago?," Presentation to the Aeronautical Law Committee of the Business Law Section of the International Bar Association, September 15, 1998. Available at [1]
• Crandall,Robert “Competition and Chaos – U.S. Telecommunications Since the 1996 Telecom Act”, Brookings Institute, 2005.
• Derthick and Quirk, The Politics of Deregulation, Brookings Institution, 1985.
• Kahn, Alfred E. "Airline deregulation" in Concise Encyclopedia of Economics.
• Moore, Thomas Gale. "Rail and Truck Reform: The Record So Far." Regulation. November/December 1988.
• Robyn, Dorothy, Braking the Special Interests, University of Chicago Press, 1987
• Rose, Seely and Barrett, 'The Best Transportation System in the World,'University of Ohio State Press, a part of an Historical Series on Business Enterprise, edited by Blackford and Kerr.

• Public service company
• Electricity provider switching

• Jump, Jive an’ Reform Regulation: How Washington Can Take a Swing at Regulatory Reform (CEI, 2000) by Clyde Wayne Crews, Jr.
• Powering a Generation of Change, National Museum of American History
• Deregulation of Business, by Ekaterina Zhuravskaya and Evgeny Yakovlev
• About Energy Deregulation, by Multiut Corporation, Nachshon Draiman CEO
• World Bank "Doing Business project"
• From Economic Deregulation to Safety Regulation Department of Transportation comprehensive study indicating, among other things, that transport deregulation reduced distribution costs in the United States from about 14% of gross domestic product to under 11% (If this measure is selected, current dollar savings can be calculated by multiplying current GDP by @3%).