Deregulation refers to limiting government control over market forces. It's a trend that began in the early 1970s and is espoused by those in favor of a free market. It is currently one of the most frequently debated economic subjects, thanks to the concept's association with the current financial crisis.
Definition
Merriam-Webster's Collegiate Dictionary defines "deregulation" as the act or process of removing restrictions and regulations.
History
The roots of the concept of deregulation, at least as it pertains to the United States, lie in the work of Adam Smith, a Scottish writer and philosopher. In 1776, he published "The Wealth of Nations" about the free-market system; its thesis is that despite the apparent randomness and chaos of the free-market system, an "invisible hand" guides market forces as the result of individual self-interest. Smith argued that when a man is pursuing his own needs, he benefits society more than if his intention was to help others rather than himself. This theory is critical to the idea of supply and demand.
Regulation in the United States
Regulation of industry in the United States got its greatest boost during the Progressive Era (1901-1921). The government created bodies to regulate certain industries, such as railroads, to prevent employer abuses and monopolies. Unfortunately, regulation proved difficult over time, as the regulatory bodies were often controlled by the industries they were supposed to regulate.
However, in addition to the creation of the federal income tax and the Federal Reserve, the presidents of this era (Theodore Roosevelt, William Howard Taft and Woodrow Wilson) also passed laws to protect consumers, raised wages, shortened working hours, protected unions and banned unfair labor practices. The New Deal was also a major step forward for government regulation of industry, with such advances as the five-day workweek and the eight-hour workday.
Emergence of Deregulation
Major policy changes to deregulate industry emerged in the early 1970s with President Richard Nixon. The movement was based on think-tank research that suggested that removing regulations would allow businesses to perform better and strengthen the economy. The first major industry to be deregulated was transportation, in 1971.
Deregulation Today
Many people are of the opinion that the deregulation of banking systems allowed the abuses that contributed to the current financial crisis that began in 2007. It's unclear to what extent deregulation played a role in the crisis, but the current trend is toward increasing regulation of financial systems and forcing stricter controls on banks. The recent changes to credit card policies and measures being taken to prevent banks from extending credit to people who cannot pay are examples of this trend.
Regulation of communications is another area of contention in the age of the Internet. Because this is one of the most difficult areas to regulate, communications regulations change frequently in regard to broadcasting restrictions and ownership of intellectual property, among other concerns.
