Arguments for Deregulation

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 States, 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. This paper discusses government regulation of business and if deregulation is the answer or not.

Discussion

Since colonial times, government has regulated business. The need for more responsive and effective business regulation was at least part of the reason for the fight for independence and the establishment of the federal government. As the U.S. economy became more industrialized and the United States grew to be a world power in the nineteenth century, the federal government passed business laws that favored social reforms over the interests of big business. In the twentieth century, government involvement continued to expand until the 1970s, when both business and the public began to call for less regulation (Laffont, Jean, Tirole, 250-350). At the beginning of the twenty-first century, the ruinous effects that utility deregulation had on California's economy and the corporate accounting scandals that came to light in late 2001 raised the possibility of a new era of federal intervention into business practices.

From State Regulation to Federal Regulation

Aside from wars and its fluctuating tariff policies, the federal government at the beginning of the nineteenth century was chiefly important to business in guaranteeing a uniform national currency and security for contracts, making gifts of land, and offering the protection of the due process of law. During this century, states actively began to promote business.

Incorporation by special act was relatively easy, and starting with New York State in 1811, manufacturing was encouraged by "general" incorporation laws requiring only the payment of a small fee(Lai, Loi, 25-45). State courts soon gave corporations the benefit of limited liability. Pennsylvania in particular bought stock in scores of manufacturing and transportation enterprises. Many of the states went into banking and canal construction. Subsequently, Railroads received much state and local assistance and often had directors representing the public interest.

In 1824 the Supreme Court strengthened the federal government's power to regulate interstate commerce with its decision in Gibbons v. Ogden, which involved the authority to license shipping. Steamboat operator Thomas Gibbons had secured only a federal license to run his business in New York State waters, which were controlled by a monopoly created through a state licensing system(Macey, Geoffrey, Richard, 45). A member of this monopoly, Aaron Ogden tried to shut down Gibbons's business by suing him for failing to have the proper New York State licenses. The Court ruled in favor of Gibbons and declared that commerce involved not only buying and selling but also transportation and navigation. By giving Congress ...