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What Is Regulation & Deregulation?
Regulation refers to controlling business through laws passed by the government. To protect the interests of consumers, government institutes regulatory laws. Conversely, deregulation deals with the elimination of government laws and rules. These laws, or removal of them, impact consumer and business activities such as obtaining loans, importing supplies and selling products. So, understanding the meaning of regulation and deregulation is crucial.
Regulation can be distinguished as economic and social. Economic regulation deals with quality of service, energy and entry conditions in specific sectors, such as transportation or communications. Social regulations deal with issues associated with risks to health, safety, and the environment. Some regulations promote safety and quality standards while others restrict commodity supplies and set tariffs to control or limit competition. Highly regulated industries include agriculture, food and fisheries, pharmaceuticals and manufacturing.
When the government deregulated industries such as airlines, trucking, railroads, natural gas and banking in the 1970s, the intent was to give these industries more power to build the economy and reduce the cost of government subsidies, and ultimately give consumers more benefits through competitive pricing and better quality products and services. Deregulation is sometimes confused with privatization, but the two are not the same. Each reduces government involvement, but from a different angle. Privatization transfers ownership to private companies and deregulation removes government involvement, or eliminates regulations, from private industries.
Effects of Regulation
Regulations help protect consumer interests from dishonest business practices and promote fair competition. The Fair Packaging and Labeling Act of 1966, for instance, mandates that businesses label their products and provide consumers with accurate information, including manufacturer, distributor and the net quantity of the content. Regulations also help employees through the various labor laws related to issues such as minimum wages, privacy of medical information, and workplace health and safety. Additionally, regulations help protect the environment from pollution and carbon footprints caused by industries. Although the intent of regulations is to protect, these laws and rules can impede economic growth, and, through subsidies, pose a burden to the government.
Effects of Deregulation
As an early example of deregulation, the termination of the Interstate Commerce Commission Act led to a substantial drop in the cost of shipping goods around the country. Similarly, the deregulation of the airline industry in the 1970s was meant to increase competition in the industry. Customer-centric operations increased flight frequency, quality of food and cabin-crew service. The telecommunication industry also benefited from deregulation as consumers saw a drop in long-distance telephone rates, and businesses began to cross-sell cable television and Internet services.