Lessons of Deregulation


These are heady times for supporters of the free market. For the first time in US history, an entrenched regulatory body—the Civil Aeronautics Board—has had its powers emasculated and is targeted for outright abolition, in 1985. As a result of the partial deregulation already accomplished, air transportation is booming, with both falling prices and rising airline profits.

It's instructive to recall the cries of doom that were heard from the industry two years ago when deregulation was first seriously proposed. The promise of lower fares was an "illusion" said TWA chairman Charles Tillinghast. "There would be chaos," said Braniff's Harding Lawrence. Deregulation would cause "grave and possibly irreparable damage" to the airlines, charged American's Albert Casey.

Today, we have Eastern's Frank Borman admitting that the deregulation-caused boom "has been above our wildest expectations. We have become mass transit, and this may be as revolutionary as the introduction of the jet engine itself." Adds Robert Hotz, editor of the industry's leading trade journal, "On balance [CAB chairman] Kahn did the air transport industry of this nation and possibly the world a lot of good."

But where do we go from here? It's all too easy to be lulled into a false sense of optimism by the success of airline deregulation. Getting rid of the remaining plethora of regulatory agencies will not be as easy. Despite studies showing the immense cost of regulation—in 1976, compliance cost Americans $63 billion, plus another $3 billion in taxes for the agencies themselves—most of the agencies are solidly entrenched, not just in the political system but in people's minds.

To be sure, there are a few sitting ducks that will probably be knocked off in the next few years. Both the Interstate Commerce Commission and the Federal Communications Commission are widely recognized as having distorted the structure of the transportation and communications industries, respectively. This has led to fat profits for favored firms and less choice and higher prices for consumers. These agencies' days are numbered.

The one other strictly economic regulatory agency—the Department of Energy—is less vulnerable at this time. Not that it is any less destructive in its attempts to fix prices and allocate resources contrary to market forces. It is simply that by repackaging the crusty old FPC together with the AEC and FEA, and engaging in a lot of scare-mongering, the administration has diverted people's attention from the government's dismal record in energy regulation.

Beyond these agencies, virtually all the others are allegedly concerned with protecting helpless citizens from the depredations of big business: from fraud (the SEC and FTC), from health hazards (the FDA, EPA, and OSHA), and from threats to life and limb (the FAA, CPSC, NHTSA, and again OSHA). In arguing against these agencies, far more than just exposes of agency/industry collusion and high costs relative to benefits are needed. What's required to make the case for abolition is a two-pronged approach, encompassing both moral and practical arguments.

As we have noted in these pages (see "Deregulation Is a Moral Issue," March 1978), we cannot ultimately be rid of government regulation until people come to understand the moral issue involved. And that issue is that people have a right to their own lives and hence a right to make their own decisions. Liberty, therefore, must count higher than safety and security in our political value system (despite the protestations of liberals like Harvard's Steven Kelman—see The New Republic, November 25, 1978). Putting government in charge of issues like auto safety and food additives denies people the basic right to make their own trade-offs about the advantages and disadvantages of seat belts and saccharin. The sledgehammer approach of the State won't permit such discretion. Contending that some are unable to make such decisions intelligently, the State usurps everyone's prerogatives and makes the decisions for them. Until the wrongness of this is widely recognized, we will not be rid of government regulation.

But there's another formidable barrier, as well. Most people honestly cannot imagine how people would be protected from stock frauds without the SEC, from plane crashes without the FAA, from air pollution without the EPA. Consequently, discussions of abolishing such agencies strike them as frivolous and utopian. "Do you really want people to be ripped off by Ponzi schemes, wiped out in air disasters, or poisoned by pollution?" they will ask, in all sincerity.

At this point, advocates of liberty must be able to do far more than merely utter platitudes about the workings of the free market. We must take people's concerns seriously enough to analyze each problem for which a government agency has been proferred as a solution, figure out what legitimate services people desire, and hypothesize the kinds of institutions the marketplace would be most likely to develop in the absence of the regulatory agency.

• In the case of pharmaceuticals, for example, there is an obvious need for independent testing labs, for information services aimed at both doctors and consumers, and possibly for revisions of liability laws.

• Auto safety standards could be devised and published by professional associations like the Society of Automotive Engineers. Specific makes and models of cars that complied with various standards could receive an SAE seal of approval—much as safe electrical appliances receive an Underwriters Laboratory seal.

• New bodies of law based on strict liability for demonstrated harm caused to persons and property by pollutants could replace bureaucratic edicts that set arbitrary emission levels.

• As shown in these pages last month ("Is This Any Way to Run an Airway?"), private enterprise could readily provide air traffic control services, as in Switzerland. And air safety standards could be set and enforced by the insurance industry. In short, feasible approaches to dealing with threats to health, safety, and well-being can be devised. We don't have to turn to the State's coercive approach.

A recent Opinion Research poll found that 43 percent of Americans favor less government regulation of business, while only 25 percent think there should be more. The momentum is clearly on the side of those favoring liberty. But unless we do our homework, all we'll accomplish is half-hearted "regulatory reform," eliminating the worst excesses, the easiest cases, but leaving the regulatory structure intact.

We must destroy the case for regulation in principle, in terms of human liberty, and follow through with practical examples of how freedom will work to solve today's problems. Only then will we have a chance to dismantle the "imperial regulatory juggernaut" once and for all.