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Deregulation - What Prospects?

George Hagedorn

Mr. Hagedorn is Vice-President and Chief Economist of the National Association of Manufacturers. This column appeared in NAM Reports, June 30, 1975.

Deregulation—a general move toward reducing the degree of direct government intervention in the economy—is now being discussed more seriously than for some time in the past. The Ford Administration is reportedly preparing a program of this character. It will take a new look at the vast accumulation of government regulatory devices and agencies to determine which of them make sense and which do not.

The question to examine here is whether such an effort has any real prospect of success. Some commentators, even those who are inclined to agree that in many instances the adverse effects of regulation out-weight its benefits, have suggested that it does not. Deregulation, they say, flies in the face of a long-established trend toward increasing government involvement in the detailed workings of the economy. "You can’t turn the clock back," I am continually told when the subject is discussed.

As rational men, we can protest against any such attitude. Why shouldn’t the country take an objective look at government regulation of the economy, in all its myriad forms, to assess its benefits and its costs, and to weigh one against the other? Why should one possible conclusion—the desirability of deregulation—be ruled out in advance? The cliché, "You can’t turn the clock back," seems to mean that once you have made a mistake you must go on making it forever, and reasonable men cannot accept that.

Those to whom such arguments are addressed often nod sympathetically, but they are not convinced. We are dealing, they say, not with a process directed by a rational analysis of advantages and disadvantages, but by a political process that moves by its own momentum. A mood has developed which leads people to insist that, when they are dissatisfied with anything, government will step in to set it straight.

A Hopeful Sign

Disheartening though such a viewpoint may be, we have to admit that it has some weight. But there are other considerations which lead to the opposite conclusion—this may be an ideal time for a move toward deregulation, and its political prospects may be very good indeed. Paradoxically, the fact that so many things are clearly wrong with the economy at this moment is a hopeful sign. We must have been doing a lot of things wrong, and one of these is overregulation. The public is losing faith in government as the universal problem solver.

One example of the falsity of the proposition that when regulation is introduced it can never be removed is the recent fate of wage and price controls. We recall that, shortly after controls were introduced, there was much talk that this action would not be reversed in the lifetime of most of us. In September 1971 (Phase I was in effect and the shape of Phase II was being discussed), the Wall Street Journal ran a story that suggested "Phase II may be forever."

But wage and price controls were abandoned in April 1974. The clock was turned back. The reason for the abandonment of controls was not an ideological change of heart, on the part of either the population or their political leaders. The reason was that controls were a conspicuous and disastrous failure.

A second consideration that leads us to believe that deregulation can be a politically realistic option is the fact that many of the most questionable forms of regulation are of fairly recent origin. True, we have had regulation of railroads since the 1880s, and regulation of financial markets since the 1930s. But the really big wave of government direct intervention in the economy has occurred during roughly the past 10 years. We now have large areas of government regulation in: product safety, occupational health and safety, water and air pollution, equal employment opportunity, etc.

The objection to most of these recently-introduced forms of regulation is not that their intentions are wrong. No one will defend pollution, or discrimination, or hazardous conditions of employment. The objection is rather that regulation is not always the most effective, or least costly, way of achieving admittedly desirable ends.

The main point, however, is that much of our regulatory apparatus is rather recent. In suggesting a new look at the possibilities of deregulation one is not proposing the unwinding of a historical process that has been going on since our great-grandfathers’ time. It is more in the nature of taking a look at the results of a 10-year experiment.

The mounting tide of government regulation is one aspect of the increasing tendency toward government activism during the past decade. The results are now in: we have an economy plagued by inflation, unemployment, slow productivity growth, declining real wages, energy shortages, a breakdown in the transportation system, etc., etc. Surely governmental activism—in all its aspects, including regulation—has been a conspicuous and disastrous failure. It is those who refuse to see the clear evidence of this that seem quaintly to be living in the past—the past of 10 years ago when the present huge volume of evidence against government intervention was not yet available.

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