Deregulation history
The process of lifting governmental restrictions that had been placed on certain industries since the Great Depression. Beginning in the 1970s and given further impetus by the Reagan administration in the 1980s, a new attitude toward business led Congress to begin passing legislation allowing various industries greater latitude in the sorts of activities they could engage in. Not all industries were involved, and the new environment was not put into place at once but phased in over a number of years.
REGULATION of industry began in the 19th century, when several states established regulatory commissions to monitor RAILROADS operating within their borders. Congress created the INTERSTATE COMMERCE COMMISSION in 1887 in order to regulate the railroads from Washington. But regulation became stalled until the stock market crash of 1929 and the early 1930s. During the Depression, restrictions were placed upon the securities and banking industries as well as on the UTILITIES. Since the early 1920s, AT&T had a virtual monopoly over telephone service that seriously restricted competition in telecommunications. During and after World War II, restrictions were placed upon other industries as well, including the airlines, defense contractors, and other forms of transportation. Many of these regulations defined the scope of an industry and sometimes prohibited companies within select businesses, such as banking, from branching across state lines. During the post–World War II period, many industries were regulated over rates that they could charge the public. Others were limited to domestic investors so that foreigners could not gain control over industries considered vital to the national defense.
A great deal of regulation was passed during the NEW DEAL, restricting the activities of many different businesses, among them the securities industry, banking, and public utility companies. The general theory behind these regulations was that any business serving the public interest needed to be regulated by government so that it would not violate its basic purpose of providing a public service at a reasonable price. After the Korean War in the 1950s, these regulations became less popular as a strengthening and growing economy often caused conflicts in regulated industries. Thus a slow drive toward deregulation was begun.
Deregulation can be interpreted in different ways depending upon the industry under consideration. Often, patterns in the regulation of industries paralleled developments in antitrust law. At other times, it was more closely related to trends in FOREIGN INVESTMENT. Conversely, changes in ANTITRUST signaled changes in regulation, especially in the case of AT&T, which lost its government-granted monopoly after a challenge to its dominance in the 1970s. The deregulation movement gained strength in the 1970s. Transportation was one of the first sectors of the economy to experience deregulation. One of the first industries to be deregulated was the airlines, and the STAGGERS RAIL ACT of 1980 allowed railroads greater flexibility in pricing. During the Reagan years in the 1980s, deregulation picked up considerable momentum and was advocated by the administration as a way of reducing the role of government in business.
Deregulation continued during the Clinton administration, and significant new laws were passed allowing previously regulated businesses greater flexibility, if not total freedom. The Energy Policy Act of 1992 allowed utility companies greater flexibility in pricing and eventually paved the way for many MERGERS between them later in the decade. The Telecommunications Act of 1996 broke down the barriers existing between AT&T and the local Bell companies, while the Surface Transportation Board, created in 1996, abolished the Interstate Commerce Commission, the first regulatory agency created in 1887. The Financial Services Modernization Act of 1999 abolished many of the regulations found in the BANKING ACT OF 1933, and the Interstate Banking Act of 1994 replaced the restrictive branching provisions of the MCFADDEN ACT of 1927.
The deregulation trend in the 1990s and the 21st century also owed much of its impetus to the increasing globalization of the world’s markets. In order to be as competitive as possible, many regulated industries argued for greater freedom in order to maintain a competitive edge in the global marketplace, especially if they had to compete with foreign companies that had no restrictions on their activities.
Further reading
- Geisst, Charles R. Deals of the Century: Wall Street, Mergers, & the Making of Modern America. New York: John Wiley & Sons, 2003.
- McCraw, Thomas. Prophets of Regulation. Cambridge, Mass.: Harvard University Press, 1984.
- Rose-Ackerman, Susan. Rethinking the Progressive Agenda: The Reform of the American Regulatory State. New York: Free Press, 1992.