A COMPARATIVE STUDY

A Comparative Study of Economic Deregulatory Effects upon U.K and Middle East Airline Industries



A Comparative Study of Economic Deregulatory Effects upon U.K and Middle East Airline Industries

Introduction

Deregulation is the easing or elimination of governmental restrictions on economic activity. In the past century, in advanced capitalist economies such as that of the United Kingdom, governments instituted many rules restricting business behavior. As these rules always seemed onerous to businesses, businesses have always been in opposition to them. This opposition became effective in the past 30 years, leading to deregulation policies to remove the fetters on market activity and let markets determine economic outcomes. From this point of view, regulation stifles the economy, creating inefficiencies and lowered output (Bailey, Graham & Kaplan, 2005). This paper presents a comparative study of economic deregulatory effects upon U.K and Middle East airline industries in a concise and comprehensive way.

A Comparative Study of Economic Deregulatory Effects upon U.K and Middle East Airline Industries

The Interstate Commerce Commission (ICC), created in 1887, was the first federal regulatory agency in the United Kingdom. At that time the railroad industry was fixing rates, controlling markets, and favoring large customers, that is, acting in noncompetitive ways. The UK government tried to reintroduce competition into this industry by setting rules and regulations concerning fares and routes. However, these rules had little effect, essentially creating a protected, noncompetitive market for the railroads under the aegis of government regulation.

Since then, many different federal regulatory agencies have emerged to regulate most economic activity (Bailey, Graham & Kaplan, 2005). For example, the oil, steel, agriculture, banking, air travel, pharmaceutical, construction, and chemical industries have all been subject to regulatory scrutiny, with varying results. Some agencies, like the ICC, have been failures; others, like the Environmental Protection Agency (EPA), have been quite successful in achieving their stated goals.

In Middle East regulation is a response to the functioning of the market. Certain undesirable outcomes may be the result of free-market activity. These kinds of outcomes can be considered as market failures, which the market itself is inherently incapable of correcting. A classic example of this is air pollution. In the refining of oil into gasoline, toxic chemicals are discharged into the air. Because the oil companies do not own the air and need not pay anyone for its use—it is commonly held by society—little incentive exists for them to limit their discharges. Whatever they spew into the air costs them nothing and therefore is not taken into account by them or consequently by the market (Meyer, et al, 2004). There may very well be costs associated with this air pollution, in the form of increased payments for health care, but they are not reflected in any market calculations. If left to the market, this problem is insoluble. Thus it becomes necessary for the government—an agent outside of the market—to step in to solve the problem.

Problems with Deregulation

As is the case with regulation, deregulation can be fraught with problems. Sometimes deregulation removes a regulation that is costly ...