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 stay in business. Airline service became a marketing focus especially in advertisements and prices dropped an astounding 26% in 1996. Telecommunications which opened its markets in 1992 for better long distance savings also saw a great change in prices where now people could call England for the same rates as they were paying to call Quebec just a few years earlier. Smaller companies like Sprint Canada emerged and offered 10-cent rate to call across Canada. The market was giving the people the rates they wanted and it was seen that regulations were not serving its purpose of serving the public good for greater access to universal goods.
Technology in the telecommunications industry also blossomed with the innovations of call display and the explosion of wireless phones that are connecting people around the world. Wireless phones helped in creating the woven world of satellites and communications in the business world. Executives can now get Email and faxes on their pagers and have wireless phones smaller than the palm of their hands. It is no doubt that all forms of communication are now coming together with Internet paging and fax paging. These technological advances are a result of the deregulation and competition created between the companies. The deregulation of electricity may see some great innovations as well, which hopes to follow the explosion of the telecommunications industry. Electricity prices are bound to see price changes in the future and deregulation is said to be the factor that will speed the shift to natural gas as a generating fuel. This is likely to go well with environmental groups as gas causes lower smog emissions than coal does. The electric industry has many promising possibilities where it is said that power companies will likely be able to build small devices that can produce power right where it is required. This would mean power generators in private households just like an individual home furnace.
Industries are now opening up for smaller firms that wish to enter into a new market. The large companies who once dominated a market namely Bell are now finding that their market share is going down because of these new emerging firms that offer better service and are more in touch with the public. Bell since 1992 has lost at least a third of its market share and is now just starting to realize that they are not satisfying their customers as they were labelled The Sleeping Giant in recent newspaper headlines. From a Canadian perspective the telecommunications industry has been floundering since deregulation because many American companies have established themselves such as Sprint and AT&T in Canadian cities.
All of these industries saw great changes with bankruptcies, mergers and take-overs which all can be accounted for from the increased competition, open freewheeling markets and deregulation. The older companies saw these changes and were caught standing still as the markets were rapidly changing at a pace they could not catch up with. The whole mentality of the companies had changed where they became more customer oriented constantly in search for the next great innovation that would change the whole industry. Deregulation enhanced the pace of the industries where competition made everything much more interesting.
The Changing Economy
The technology today that has been innovated by competition is now eroding the borders that divide business. The business world has become much smaller through the digital world of wireless phones, computers and information technology. There is more international trade and the transformation of small firms into multinationals that provide services all over the world. The regulations that once kept smaller firms from entering into new markets now allow firms to enter into multiple markets and with the vast information and resources available these firms can establish themselves very rapidly. The regulations on the movement of information are declining in the midst of the rush onto the Internet allowing a freer flow of ideas to be generated. The fierce competition has also increased pressure on companies to perform by outside investors and they are forced to focus their attention to the needs of the consumers. This means that the very structure and mentality of the corporations have evolved where they must be flexible and responsive to market needs. This can account for the increased spending on advertising and the me culture that is arising from the media. Corporations are targeting specific consumers and creating a culture of brand names and the you deserve it attitude. The governments role has also decreased considerably where they have moved away from being the producer, controller and intervenor and now act more as an official that sets the rules of the game. The control is now in the hands of the market where competition will meet the demands of the consumer.
The economy has become more open to new emerging markets and entrepreneurs who seek profits and some healthy competition. Deregulation has changed the face of business with advancements in communications and probable changes that will come about in the future of hydro electricity. Culturally there is a new mentality where the consumer needs are met at an astounding pace and the generation grows up with new innovations to pamper their every need and want. But the greatest change has been the shift of power from the state to the market. There is the belief that market knowledge will meet the demands in a way that the state never could and so the government has now allowed virtually anyone to enter into an industry.