Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmentalregulation 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 theGilded Age, in whichprogressive reforms were claimed as necessary to limitexternalities like corporate abuse, unsafechild labor,monopolization, andpollution, and to mitigate boom and bust cycles. Around the late 1970s, such reforms were deemed burdensome on economic growth and many politicians espousingneoliberalism started promoting deregulation.
The stated rationale for deregulation is often that fewer and simpler regulations will lead to raised levels of competitiveness, therefore higherproductivity, more efficiency and lower prices overall. Opposition to deregulation may involve apprehension regardingenvironmental pollution[1] and environmental quality standards (such as the removal of regulations on hazardous materials), financial uncertainty, andconstraining monopolies.
Regulatory reform is a parallel development alongside deregulation. Regulatory reform refers to organized and ongoing programs to review regulations with a view to minimizing, simplifying, and making them more cost effective. Such efforts, given impetus by theRegulatory Flexibility Act of 1980, are embodied in the United States Office of Management and Budget'sOffice of Information and Regulatory Affairs, and the United Kingdom'sBetter Regulation Commission.Cost–benefit analysis is frequently used in such reviews. In addition, there have been regulatory innovations, usually suggested by economists, such asemissions trading.
Deregulation can be distinguished fromprivatization, which transfers state-owned businesses to theprivate sector.
Argentina underwent heavy economic deregulation,privatization, and had afixed exchange rate during theMenem administration (1989–1999). In December 2001,Paul Krugman comparedEnron with Argentina, claiming that both were experiencing economic collapse due to excessive deregulation.[2] Two months later, Herbert Inhaber claimed that Krugmanconfused correlation with causation, and neither collapse was due to excessive deregulation.[3]
Having announced a wide range of deregulatory policies,Labor Prime MinisterBob Hawke announced the policy of "Minimum Effective Regulation" in 1986. This introduced now-familiar requirements for "regulatory impact statements", but compliance by governmental agencies took many years. The labor market under the Hawke/Keating governments operated under thePrices and Incomes Accord. In the mid-90sJohn Howard'sLiberal Party began deregulation of the labor market with theWorkplace Relations Act 1996, going much further in 2005 through itsWorkChoices policy. However, this was reversed under the followingRudd Labor government.
AfterDilma's impeachment, Michel Temer introduced alabor reform, besides allowing up to 100% of foreign capital on Brazilian air companies[4] and giving more protection to state-owned enterprises from political pressure.[5]Bolsonaro administration also promoted deregulations (even the expression "Bolsonomics" was created),[6] such as Economic Freedom Law,[7] Natural Gas Law,[8] Basic Sanitation Legal Framework,[9] besides allowing the direct sale of ethanol by fuel stations[10] and opening rail transport industry to private investment.[11] and deregulating the use of foreign currency.[12]
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Natural gas is deregulated in most of the country, with the exception of some Atlantic provinces and some pockets like Vancouver Island and Medicine Hat. Most of this deregulation happened in the mid-1980s.[13]Comparison shopping websites operate in some of these jurisdictions, particularly Ontario, Alberta and British Columbia. The other provinces are small markets and have not attracted suppliers. Customers have the choice of purchasing from a local distribution company (LDC) or a deregulated supplier. In most provinces the LDC is not allowed to offer a term contract, just a variable price based on the spot market. LDC prices are changed either monthly or quarterly.
Ontario began deregulation of electricity supply in 2002, but pulled back temporarily due to voter and consumer backlash at the resulting price volatility.[13] The government is still searching for a stable working regulatory framework.
The current status is a partially regulated structure in which consumers have received a capped price for a portion of the publicly owned generation. The remainder has been at market price and there are numerous competing energy contract providers. However, Ontario is installing Smart Meters in all homes and small businesses and is changing the pricing structure to Time of Use pricing. All small volume consumers were scheduled to shift to the new rate structure by the end of 2012.
Alberta has deregulated its electricity provision. Customers are free to choose which company they sign up with, but there are few companies to choose from and the consumer price of electricity has increased substantially as it has in all other Canadian provinces.. Consumers may choose to remain with the public utility at the Regulated Rate Option.
In 2003, there were amendments to EU directive onsoftware patents.[14]
Since 2006, theEuropean Common Aviation Area has given carriers from one EU country thefreedom of the air in most others.[15]
The taxi industry was deregulated inIreland in 2000,[16] and the price of a license dropped overnight to €5,000. The number of taxis increased dramatically.
However, some existing taxi drivers were unhappy with the change, as they had invested up to €100,000 to purchase licenses from existing holders, and regarded them as assets. In October 2013 they brought a test case in the High Court for damages.[16] Their claim was dismissed two years later.[17]
New Zealand Governments adopted policies of extensive deregulation from 1984 to 1995. Originally initiated by theFourth Labour Government of New Zealand,[18] the policies of deregulation were later continued by theFourth National Government of New Zealand. The policies had the goal of liberalizing the economy and were notable for their very comprehensive coverage and innovations. Specific policies included: floating the exchange rate; establishing an independent reserve bank; performance contracts for senior civil servants;public sector finance reform based on accrual accounting; tax neutrality; subsidy-free agriculture; and industry-neutral competition regulation. Economic growth was resumed in 1991. New Zealand was changed from a somewhat closed and centrally controlled economy to one of the most open economies in the OECD.[19] As a result, New Zealand, went from having a reputation as an almost socialist country to being considered one of the most business-friendly countries of the world, next to Singapore. However, critics charge that the deregulation has brought little benefit to some sections of society, and has caused much of New Zealand's economy (including almost all of the banks) to become foreign-owned.[citation needed]
Russia went through wide-ranging deregulation (and concomitant privatization) efforts in the late 1990s underBoris Yeltsin, now partially reversed underVladimir Putin. The main thrust of deregulation has been the electricity sector (seeRAO UES), with railroads and communal utilities tied in second place.[citation needed] Deregulation of the natural gas sector (Gazprom) is one of the more frequent demands placed upon Russia by the United States and European Union.[citation needed]
TheConservative government led byMargaret Thatcher started a programme of deregulation andprivatization after the party's victory at the1979 general election. TheBuilding Act 1984 reduced building regulations from 306 pages to 24, whilecompulsory competitive tendering required local government to compete with the private sector in delivering services.[20] Other steps includedexpress coach (Transport Act 1980),British Telecom (completed in 1984),privatization of London bus services (1984),local bus services (Transport Act 1985) andthe railways (Railways Act 1993). The feature of all those privatizations was that their shares were offered to the general public. This continued under Thatcher's successorJohn Major.[citation needed]
From 1997 to 2010, theLabour governments ofTony Blair andGordon Brown developed a programme called "better regulation". This required government departments to review, simplify or abolish existing regulations, and a "one in, one out" approach to new regulations. In 1997, Chancellor Brown announced the "freeing" of the Bank of England to set monetary policy, so the Bank was no longer under direct government control. In 2006, new primary legislation (theLegislative and Regulatory Reform Act 2006) was introduced to establish statutory principles and a code of practice and it permits ministers to makeRegulatory Reform Orders (RROs) to deal with older laws which they deem to be out of date, obscure or irrelevant. This act has often been criticized and was described in Parliament byLord (Patrick) Jenkin as the "Abolition of Parliament Act".[21]
New Labour privatized only a few services, such asQinetiq. But a great deal of infrastructure and maintenance work previously carried out by government departments was contracted out (outsourced) to private enterprise under thepublic–private partnership, with competitive bidding for contracts within a regulatory framework. This included large projects such as building new hospitals for theNHS, building new state schools, and maintaining theLondon Underground. These were never privatized by public offer, but instead by tendering commercial interests.[citation needed]
One problem that encouraged deregulation was the way in which regulated industries often come to control the governmentregulatory agencies in a process known asregulatory capture. Industries then use regulation to serve their own interests, at the expense of the consumer. A similar pattern has been seen with the deregulation process itself, often effectively controlled by regulated industries through lobbying. Such political forces, however, exist in many other forms for otherlobby groups.[citation needed]
Examples of deregulated industries in the United States are banking, telecommunications, airlines, and natural resources.[22]
During theProgressive Era (1890s–1920),PresidentsTheodore Roosevelt,William Howard Taft, andWoodrow Wilson instituted regulation on parts of the American economy, most notably big business and industry. Some prominent reforms weretrust-busting (the destruction and banning of monopolies), the creation of laws protecting the American consumer, the creation of a federal income tax (by theSixteenth Amendment; the income tax used aprogressive tax structure with especially high taxes on the wealthy), the establishment of theFederal Reserve, the institution of shorterworking hours, higherwages, better living conditions, better rights and privileges to trade unions, protection of the rights ofstrikers, banning of unfair labor practices, and the delivery of moresocial services to the working classes andsocial safety nets to many unemployed workers, thus helping to create awelfare state.[citation needed]
During the Presidencies ofWarren Harding (1921–23) andCalvin Coolidge (1923–29), the federal government generally pursuedlaissez-faire economic policies. After the onset of theGreat Depression, PresidentFranklin D. Roosevelt implemented many economic regulations, including theNational Industrial Recovery Act (which was struck down by the Supreme Court), regulation of trucking, airlines and communications, theSecurities Exchange Act of 1934, and theGlass–Steagall Act of 1933. These regulations stayed largely in place untilRichard Nixon's Administration.[23] In supporting his competition-limiting regulatory initiatives President Roosevelt blamed the excesses of big business for causing aneconomic 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.[citation needed]
Deregulation gained momentum in the 1970s, influenced by research by theChicago school of economics and the theories ofGeorge Stigler,Alfred E. Kahn,[24] and others.[25] The new ideas were widely embraced by both liberals and conservatives. Two leading think tanks in Washington, theBrookings Institution and theAmerican 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 theCarter Administration's efforts to deregulate transportation.[24][26]
The first comprehensive proposal to deregulate a major industry, transportation, originated in theRichard Nixon Administration and was forwarded to Congress in late 1971.[27] This proposal was initiated and developed by an interagency group that included the Council of Economic Advisors (represented byHendrik Houthakker and Thomas Gale Moore[28]), White House Office of Consumer Affairs (represented by Jack Pearce), Department of Justice, Department of Transportation, Department of Labor, and other agencies.[29]
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.[30] 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, theGerald Ford presidency, with the allied interests, secured passage of the first significant change in regulatory policy in a pro-competitive direction, in theRailroad Revitalization and Regulatory Reform Act of 1976.[citation needed]
PresidentJimmy Carter – aided by economic adviser Alfred E. Kahn[24] – devoted substantial effort to transportation deregulation, and worked with Congressional and civil society leaders to pass theAirline Deregulation Act on October 24, 1978 – the first federal government regulatory regime, since the 1930s, to be completely dismantled.[31][32]
Carter also worked with Congress to produce theStaggers Rail Act (signed October 14, 1980), and theMotor 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 lessenbarriers 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.[citation needed]
U.S. PresidentRonald Reagan campaigned on the promise of rolling back environmental regulations. His devotion to the economic beliefs ofMilton Friedman led him to promote the deregulation of finance, agriculture, and transportation.[33] A series of substantial enactments were needed to work out the process of encouraging competition in transportation. Interstate buses were addressed in 1982, in theBus Regulatory Reform Act of 1982. Freight forwarders (freight aggregators) got more freedoms in theSurface 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 theFederal 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, theShipping Act of 1984 and theOcean 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 theUnited 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.[citation needed]
TheEmergency Petroleum Allocation Act was a regulating law, consisting of a mix of regulations and deregulation, which passed in response toOPEC price hikes and domestic price controls which affected the1973 oil crisis in the United States. After adoption of this federal legislation, numerous state legislation known asNatural 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. TheEnergy Policy Act of 1992 eliminated obstacles for wholesale electricity competition, but deregulation has yet to be introduced in all states.[34] 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, andTexas) and theDistrict of Columbia have introduced deregulatedelectricity markets to consumers in some capacity. Additionally, seven states (Arizona,Arkansas,California,Nevada,New Mexico,Virginia, andWyoming) began the process of electricity deregulation in some capacity but have since suspended deregulation efforts.[35]
Deregulation was put into effect in the communications industry by the government at the start of theMulti-Channel Transition era.[36] This deregulation put into place a division of labor between the studios and the networks.[37] 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. TheFederal 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.[38] 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.[citation needed]
Thefinancial sector in the U.S. has been considerably deregulated in recent decades, which has allowed for greaterfinancial risktaking. The financial sector used its considerable political sway inCongress and in the political establishment and influenced the ideology of political institutions to press for more and more deregulation.[39] Among the most important of the regulatory changes was theDepository Institutions Deregulation and Monetary Control Act of 1980, which repealed the parts of theGlass–Steagall Act regarding interest rate regulation via retail banking. TheFinancial Services Modernization Act of 1999 repealed part of the Glass–Steagall Act of 1933, removing barriers in the market 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 risktaking by finance sector firms through the creation ofinnovative financialinstruments and practices, includingsecuritization of loan obligations of various sorts andcredit default swaps.[40] This caused a series of financial crises, including thesavings and loan crisis, theLong-Term Capital Management (LTCM) crisis, each of which necessitated major bailouts, and the derivatives scandals of 1994.[41][42] These warning signs were ignored as financial deregulating continued, even in view of the inadequacy ofindustry 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 theconsequences of the great risks they take. Thus, the greater risktaking allowed by deregulation and encouraged by the bailout paved the way for thefinancial crisis of 2007–08.[43][42]
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The deregulation movement of the late 20th century had substantial economic effects and engendered substantial controversy. The movement was based on intellectual perspectives which prescribed substantial scope for market forces, and opposing perspectives have been in play in national and international discourse.[citation needed]
The movement toward greater reliance on market forces has been closely related to the growth of economic and institutionalglobalization between about 1950 and 2010.[citation needed]
Many economists have concluded that a trend towards deregulation will increase economic welfare long-term and a sustainable free market system. Regarding the electricity market, contemporary academic Adam Thierer, "The first step toward creating a free market in electricity is to repeal the federal statutes and regulations that hinder electricity competition andconsumer choice."[44] This viewpoint stretches back centuries. Classical economistAdam Smith argued the benefits of deregulation in his 1776 work,The Wealth of Nations:
[Without trade restrictions] the obvious and simple system of natural liberty establishes itself of its own accord. Every man...is left perfectly free to pursue his own interest in his own way.... The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.[45]
Scholars who theorize that deregulation is beneficial to society often cite what is known as the Iron Law of Regulation, which states that all regulation eventually leads to a net loss in social welfare.[46][47]
Critics ofeconomic liberalization and deregulation cite the benefits of regulation, and believe that certain regulations do not distort markets and allow companies to continue to becompetitive, or according to some, grow in competition.[48] Much as the state plays an important role through issues such asproperty rights, appropriate regulation is argued by some to be "crucial to realise the benefits of service liberalisation".[48]
Critics of deregulation often cite the need of regulation in order to:[48]
Sharon Beder, a writer with PR Watch, wrote "Electricity deregulation was supposed to bring cheaper electricity prices and more choice of suppliers to householders. Instead it has brought wildly volatile wholesale prices and undermined the reliability of the electricity supply."[49]
William K. Black says that inappropriate deregulation helped create a criminogenic environment in thesavings and loan industry, which attracted opportunisticcontrol frauds likeCharles Keating, whose massive political campaign contributions were used successfully to further remove regulatory oversight. The combination substantially delayed effective governmental action, thereby substantially increasing the losses when the fraudulentPonzi schemes finally collapsed and were exposed. After the collapse, regulators in the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) were finally allowed to file thousands of criminal complaints that led to over a thousand felony convictions of key Savings and Loan insiders.[50] By contrast, between 2007 and 2010, the OCC and OTS combined made zero criminal referrals; Black concluded that elite financial fraud has effectively been decriminalized.[51]
EconomistJayati Ghosh is of the opinion that deregulation is responsible for increasing price volatility on the commodity market. This particularly affects people and economies in developing countries. More and more homogenization of financial institution which may also be a result of deregulation turns out to be a major concern for small-scale producers in those countries.[52]
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