De-regulation

Deregulation is the removal or reduction of government regulations in a specific industry. The goals are to allow industries to operate businesses more freely, make decisions efficiently, and remove corporate restrictions. The benefits of deregulation could often be reflected in the level of competition, price, productivity, and innovation. There are three main rationales behind deregulation (the opposite being those of regulation). First, the regulation is no longer effective and thus ceases to produce a socially desirable result. Regulation of natural monopolies, externalities, and market imperfections may be lessened or eliminated when (1) substitutes for regulation are perceived to exist, (2) market changes make the original rationales no longer operative, or (3) the regulation is perceived to be too costly for whatever social benefits it generates. Second, ideological commitments often shape when political decision makers seek to bring about increased regulation or deregulation. Third, a regulated industry might seek to bring about deregulation through political pressure. When there is significant negative public attention directed at an industry or business generally, regulatory pressures increase. The passage of time, however, may cause such pressures to decrease, providing opportunities for an industry to seek deregulation. Deregulation is often treated as synonymous with liberalization. Although the two are, in principle, distinct (in that liberalized markets can still be subject to government regulations, for example to protect consumers), in practice, both terms are generally used to refer to the freeing of markets from state intervention. Deregulation is not to be confused with privatization either, which transfers state-owned businesses to the private sector. Privatization could be a tool of deregulation. 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. Deregulation became common in advanced industrial economies in the 1970s and 1980s. In the U.S., the Airline Deregulation Act of 1978 eliminated restraints in the airline industry. Before, the Civil Aeronautics Board governed routes, set airfare prices, and guaranteed 12% profit for the airline company for flights with more than 50% capacity. As a result, it made flight tickets expensive for consumers and prevented people from choosing air travel. The legislation allowed new airline companies to be able to enter the market more easily, which increased competition and made fares more affordable for consumers. The process of deregulation, or privatization, of the UK’s energy market began in 1989 with the Electricity Act of 1989. Before the deregulation, the Central Electricity Generation Board (CEGB) owned all of the transmission rights and controlled the production and distribution of electricity in England and Wales. After, the CEGB was divided into four different companies. During privatization, the regional distribution companies had to make an accounting separation between their distribution and retail activities. This was because the distribution rights gave these companies a regional monopoly and the profits needed to be monitored to ensure fairness for the customers. Before deregulation took effect, three major power producers in England accounted for 75% of the UK’s total electricity generation. The highly concentrated market became more diverse throughout the deregulation process, and now over 38 major power producers operate in the UK with a growing number of small power producers. Market diversification in the electric industry has helped the UK transition from a primarily coal-powered country to a country with various means of producing energy. However, under multiple crisis (health, geopolitics, environment, etc.) and facing the increasing power of big digital companies, more active regulatory interventions are replacing the deregulation trend, with the European Union wanting to harmonize regulation amongst the member countries. In the case of the UK energy market, the deregulated system works fine in normal conditions but has been breaking down under pressure from sky-high prices caused by supply disruptions in Europe. Domestic fuel bills look set for large increases in 2022, even with price caps to protect households. As of mid-January 2022, 25 U.K. domestic energy suppliers had gone out of business since August, forcing about 4 million homes to switch providers.