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Sunday, May 17, 2009

In the Midst of Crisis, Let’s Not Lose Sight of the Good Things About Deregulation

Deregulation, at least of financial markets, has been taking some heavy hits in the news in general, and in this blog. So before I start getting accused of being some kind of big-government, tax-and-spend commie pinko, which is far from the truth, let me acknowledge that deregulation of certain industries has produced many positive effects:

1. In the airline industry, deregulation created more competition and paved the way for the lower fares, in constant dollar terms, that we see today in comparison to those of the 1960s and 1970s. Air travel changed from a luxury to something that was affordable to middle class Americans.

2. Deregulation in telecommunications opened the door to competition in such areas as long distance service which, in its earlier days, was ridiculously overpriced. And telephone bills in general are now substantially less expensive in real terms than they were thirty years ago, and often include, for a flat rate, unlimited long distance and premium services.

3. Opening up more of the spectrum of radio frequencies for commercial use made innovations such as cellular telephones and wireless data transmission possible.

What’s the lesson? Some industries need more regulation than others. And some industries need more regulation in certain stages of their evolution.

So why not take government out of the equation and let industries regulate themselves? Because it won’t work, any more than making payment of your water bill a voluntary option would work. Issues that have no effect on the short-term bottom line or that would affect it negatively tend to be ignored by businesses. This is why there was a time, for example, when factories that were not subject to environmental regulations freely polluted rivers, streams, and groundwater. Without regulation, there was no incentive to do otherwise.

The most dicey issues come up when the need for regulation of an industry emerges in mid stream. There was a time when we didn’t know that tobacco causes lung cancer, or that lead paint in homes can poison children. In this kind of situation, introducing regulations in product categories that are already widely distributed or, if necessary, transitioning them out of the market entirely, can be extremely difficult.

We’ll no doubt face similar challenges in the future. Examples include the question of whether there is a provable link between electromagnetic energy from wireless devices and cancer. In such situations, there may be no easy answer. And this is precisely why transparency of publicly accessible information, disclosure requirements on businesses when negative issues are known, openness of communication, and collaborative dialogue among industry, government, and consumers will remain essential to guiding optimal regulatory decisions and preventing abuses. Sphere: Related Content

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