Competition and Regulation in Utility Markets

An End to Economic Regulation?

The end of the Cold War and the collapse of Communism in the 1990s have been attributed in part to the triumph of markets over government control of resources. Despite the Central Intelligence Agency's best efforts to overstate the national output of the Soviet Union, by the 1980's it had become evident to everyone—particularly to its own citizens—that the Soviet system could no longer continue to support an army and provide ordinary citizens a modern standard of living. This remarkable "end of history" came only about a decade after the beginning of the wave of deregulation that first gripped the United States, but then spread to the United Kingdom and—to a lesser extent—to the European continent. This suggests that, even in the West, the importance of markets was not fully appreciated until very recently.

Despite its enormous success, the deregulatory movement may be stalled and even subject to reversal in the wake of the spectacular failure of California electricity "deregulation," doubts about the United Kingdom's electricity and rail privatization/deregulation policies, and the spectacular collapse of the Enron Corporation.

In this paper, I examine the case for eliminating the remaining pockets of regulation in the United States, but in doing so I look beyond the policies that we usually categorize as "regulation." There simply is not much left of traditional economic regulation except for telecommunications and electricity, and complete deregulation in either of these two sectors would be impossible in the current political environment. On the other hand, a wider assault against the myriad forms of inefficient government intervention in markets that continue in the United States, as in most developed economies, might prove more successful in mustering longer term political support than would debates that focused solely on telecom or electricity. Trade protection, agricultural price supports, non-price allocation of water, regulation of airport landing rights, and government allocation of the electromagnetic spectrum could be targeted at the same time to build this broader reform coalition.