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Deregulation

Source:
The Oxford Companion to American Politics
Author(s):
Paul J. Quirk

Deregulation 

A wide-ranging deregulation of economic activity has been one of the most notable recent developments of contemporary political economy. For most of the twentieth century, the trend throughout the world had been toward more detailed and extensive regulation of business. Since the mid-1970s, however, most of the developed democracies have scaled down or abolished important regulatory programs. Many developing countries have followed suit. The privatization of municipal services and state enterprises in the Western democracies, and the liberalization of planned economies in Eastern and Central Europe, are evidence of deregulation during the last quarter of the twentieth century.

Politically, deregulation sometimes has resulted from economic or technological changes that led regulated industries to withdraw their support for regulation. For example, in the United States the introduction of new forms of personal saving forced the banking industry to support the deregulation of deposit interest.

But for the most part deregulation has reflected intellectual and political developments. Academic economists had concluded by the 1960s that regulation of pricing and entry in multifirm industries was almost always unwarranted. By the mid-1970s, certain public attitudes were adding force to the economists’ critique. These included anxiety about inflation, skepticism about the efficacy of government programs, and (especially in the United States) a moralistic anger about improper collusion between government and business. In addition, the globalization of the world economy has pushed many countries toward deregulation as a means of enhancing the competitiveness of their industries.

These forces promoted deregulation primarily in one class of regulatory programs—those that controlled entry or set production quotas or minimum prices in potentially competitive industries. Major industries that experienced deregulation include transportation (including railroads, trucking, airlines, and intercity buses); financial services (such as banking, and securities brokerage); communications (including telephone equipment, long-distance service, broadcasting, and cable television); agriculture (both price supports and marketing orders); and many other industries and occupations. Although there were also efforts to reduce the cost or increase the efficiency of other regulatory programs (environmental protection, equal opportunity requirements, public utility regulation, and so on), these programs generally did not come under severe attack.

Support for deregulation has cut across political lines. In the United States, early sponsorship was provided by both a liberal Democratic senator, Edward M. Kennedy, and a conservative Republican president, Gerald R. Ford. In Britain, deregulation was a central commitment of the conservative Margaret Thatcher government. In France, broadcast deregulation was implemented by the socialist government of François Mitterrand. The principal opposition generally came from regulated industries and their labor unions, which sought to preserve protection from competition. The ability to adopt deregulatory policy changes, therefore, typically depended on government’s capacity to overcome pressure from narrow groups and act on behalf of widely shared interests. The scope and intensity of deregulation also reflected national dispositions toward market-oriented economic policies. The most wide-ranging deregulation occurred in the United States, Britain, and Australia; Canada, Italy, France, and Germany took more moderate steps toward deregulation; while Japan, Denmark, and Austria adopted very limited deregulatory measures. In the 1990s, the economic integration advanced by the European Union led to wide-ranging deregulation among all the member countries.

For the most part, deregulation has delivered on its promise of economic benefits: lower rates and more flexible service in freight transportation, accelerated technological progress in communications, expanded entertainment and information services, lower average airfares, smaller commissions for the execution of stock transactions, and higher interest rates on savings deposits, among others. In a few cases, however, there have also been adverse consequences. These have included, in the United States, fare instability in the airline industry and, most important, the collapse of the savings and loan industry in the late 1980s. But even for those industries, prior to the 2008 financial crisis, there had been little support for reregulation.

The privatization of municipal services and state enterprises in the Western democracies and the liberalization of planned economies in Eastern and Central Europe are related manifestations of a worldwide pro-market trend in recent decades.

[See also Regulation.]

Bibliography

Button, Kenneth, and Dennis Swann, eds. The Age of Regulatory Reform. (Oxford, 1989).Find this resource:

    Derthick, Martha, and Paul J. Quirk. The Politics of Deregulation. (Washington, D.C., 1985).Find this resource:

      Grindle, Merilee S. Challenging the State: Crisis and Innovation in Latin America and Africa. (Cambridge, UK, 1996).Find this resource:

        Paul J. Quirk