Deregulation is the removal or relaxation of previously enacted public laws that exert control over business and industry. Proponents of deregulation believe government rules and regulations limit competition, growth and development of the free market economy. Deregulation has met with varying degrees of success and disaster in telecommunications, energy, transportation and financial services sectors of the U.S. economy.
Types of Regulation
Industries in a free market are regulated to correct for actual or potential economic and social abuse. Limits on company mergers to prevent monopolies, price controls and licensing requirements are the main types of economic restrictions. Social regulations, such as labeling requirements, worker safety and anti-pollution laws prevent harm by controlling business practices.
Benefits of Deregulation
In theory, deregulation helps both consumers and industries. Removing controls on the free market creates opportunities for new businesses; increased competition leads to lower prices for consumers.
One Size Does Not Fit All
Deregulation of the financial services sector in the U.S. was a prime factor in the 2008 economic crisis that required the U.S. federal government to spend $700 billion (and still counting) to support the domestic and global economy. The Financial Services Modernization Act of 1999, passed under President Bill Clinton's administration, repealed regulations in place since 1935 that prevented the merger of banking, insurance and securities firms.
Successful Deregulation
The very first instance of U.S. industry regulation--control of railroads beginning in 1887 by the Interstate Commerce Commission (ICC)--is deregulation's biggest success story. Regulations stifled the industry and by 1919 the government was heavily subsidizing railroads. The fledgling trucking industry at the time was also brought under control. Attempts to deregulate freight transport on land began in 1962 and culminated with the ICC Termination Act of 1995. Results include a documented 25 to 40 percent drop in costs to ship goods around the country. Relieved of regulations, firms are better able to negotiate routes and prices creating a more efficient market.
Deregulation of Airlines
Prior to the Airlines Deregulation Act of 1978 the Civil Aeronautics Board controlled all aspects of air travel, most notably entry to the market and pricing. Existing airlines competed for customers only on the basis of flight frequency, quality of food and cabin crew service. Deregulation freed the market for competition. As a result, air fare prices have fallen by an estimated 25 percent, according to 2000 figures. The number of new airlines operating in the U.S. doubled between 1978 and 1997, from 43 to 90, but Pan Am and Eastern Airlines went bankrupt in the aftermath. Air travel is still partially regulated by antitrust laws limiting mergers and the government controls the infrastructure (in this case, air space).
Telecommunications Deregulation
Beginning with the breakup of the AT&T monopoly in 1984, deregulation advanced with the Telecommunications Act of 1996. This law permitted telephone service providers cross-market entry to also provide cable television and Internet service. Consumers have benefited generally from lower long-distance telephone rates, but competition has not materialized and the field continues to be dominated by only a few providers.
Energy Deregulation
Attempts to deregulate complex energy markets such as electricity and natural gas are ongoing. Each state has a utility commission to oversee retail sale, which is maintained at cost, and the Federal Energy Regulatory Commission (FERC) oversees wholesale transactions.
