Myth: Deregulation promotes competition.
Fact: Deregulated competition eventually leads to monopolies.
Deregulation only promotes competition in the early stages. In the latter stages
it actually eliminates competition as rivals are driven out of business. Owners
feel the need to cut every corner possible -- and both workers and consumers pay
the price. And what is the result of all this perpetual elimination of business rivals?
A monopoly, of course.
The many hymns to deregulation usually describe the success stories
that occur immediately after deregulation. This is always a period of price-slashing
and better service as companies compete to attract more customers. But
there is always more to the story, which often takes years to play out.
The latter stages of deregulation feature generally look like this:
Of course, competition, corporate restructuring and eliminating inefficiency
are all necessary to keep an economy healthy. A moderated meritocracy allows
competition to thrive right up until the point where it becomes destructive,
and then it steps in to prevent trouble. The advantage of such a system
is that competition becomes sustainable. It is a supreme irony of unrestricted
meritocracies that what starts out as a wide open field of competition
sooner or later winds up as no competition at all.
- There is a perpetual elimination of the weakest companies, even when
only strong ones are left.
- During the heated competition phase, the name of the game is not prosperity,
- Corporations become desperate to cut costs wherever possible to maximize
- Consumer and worker safeguards are reduced or eliminated.
- Environmental safeguards are reduced or eliminated.
- Convenience and comfort are reduced or eliminated.
- Wages are reduced.
- Workers are laid off by the thousands.
- Production and workloads are pushed to the limit, often at the risk
of life and limb.
- Entire markets -- for example, rural areas -- are dropped if they are
- In the final stages, a monopoly or oligopoly emerges, after which prices
are raised, services dropped, quality reduced, and corruption and abuses of power
- Workers from failed companies continue working in their fields by either
joining the few surviving giants (usually at lower wages) or working alone (always
at lower wages). In other words, a monopoly or oligopoly will dominate the market, but
hundreds of nickel-and-dime operations may work around the edges.
We have already described how deregulation affected the airline industry.
After a brief period in which new airlines formed to compete for customers,
there was a shake-out. To cut costs, airlines began paring back their maintenance
and safety crews, which outraged the flying public. Since 1978, a dozen
airlines have merged or gone out of business. Some 50,000 employees lost
their jobs. Now that a few majors exist, air service is being dropped to
130 smaller communities, many others are served by only one airline, and
air fares are climbing faster than the planes themselves. (1)
After the trucking industry was deregulated in 1980, truckers ran their
trucks without maintenance until they became road hazards. More than 100
companies have gone out of business since then, and 150,000 truckers at
those companies have lost their jobs. The surviving majors
hired them back, but only after cutting their wages. At least 350,000
truckers are now private owner/operators, which are not reflected in government
trucking statistics; they make even less than their corporate counterparts.
In 1982, Savings and Loan lobbyists bribed Congress to quietly deregulate
the industry. In effect, Congress promised to cover any losses if S&Ls
made bad investments with their customer's savings, but also promised not
to regulate or oversee these investments. Industry experts call this arrangement
"moral hazard," because it tempts investors to abandon their
normally cautious, conservative investments and make high-risk, high-return
gambles instead. Not surprisingly, fraud and abuse soon ran rampant in
any institution that called itself an S&L. Investments turned sour;
to cover their losses, the culprits committed even more sins. Charles Keating
was caught attempting to bribe five U.S. Senators to bail him out of trouble.
To date, about 650 S&Ls have gone under, and another 400 are threatening
to. The final bill to the taxpayers: half a trillion dollars.
With amazing audacity, Congress then set out to deregulate the banking
After the cable television industry was deregulated in 1984, prices
soared, quality of programming plummeted, and cable systems began selling
their channels in indivisible blocs that prevented subscribers from voting
with their dollars. From 1986
to 1990, the cost of basic service rose 56 percent -- twice the rate of
inflation. (3) The problem? Growing monopolization, at several levels.
There are now 11,000 cable systems
across the nation, almost all of them exercising a local monopoly over
their municipal region. They in turn are controlled by a handful of national
companies. By far the most dominant is the ever-expanding TCI, which is a
gatekeeper over national programming. Its owner, John
Malone, owns all or part of 25 national or regional cable channels, including
Turner Broadcasting. (4) Because there is little or no competition, cable
programmers search for the cheapest shows to produce. Quality of programming
has sunk to network TV levels. It seems that each year, Congress passes
yet another cable deregulation bill. Every single one has been touted to
"open competition" and "benefit the consumer." But
the concentration of power in the cable industry keeps getting worse, not
The deregulation of cable is only a small part of what is happening
to the media in general. In 1983, Ben Bagdikian published The Media Monopoly,
which warned that continuing deregulation of the media under Reagan's FCC
was allowing the media to be bought and controlled by an ever-shrinking
number of corporate owners. Once called "alarmist," the book
is now considered a classic, because all its predictions have come true.
By 1992, the number of corporations
controlling the media had fallen from 50 to 20, and more media mergers
are inevitable. ABC is controlled by Disney, NBC by General Electric, CBS
by Westinghouse -- and all these parent companies are renowned for their
conservative political activism. Most cities have become one-newspaper
towns, with giant companies like Gannett and Knight-Ridder buying every
paper in sight. Once a newspaper has been taken over by one of these giants,
the same things happen: to
maximize profits, editors lay off journalists, reduce local stories,
rely more heavily on national news wires, publish more sex and violence,
and increase their advertising. The drop in quality is so great that even
Gannett's CEO admitted his papers were journalistically "embarrassing."
(5) Almost every year, Congress deregulates the media still further, even
as dizzying new mergers make headlines. The 1996 Telecommunications Act
became notorious for censoring sexual content on the Internet, but perhaps
even more insidious was its massive deregulation of the media. By the time
information has become centralized in this country, we will have finally
abandoned the ideal of a free press.
Deregulation in the telephone and transportation industries have brought
different results to different sectors of the nation. Companies have dropped
routes and services to poor communities, or only offered them by raising
prices exorbitantly. Senator Byron Dorgan (D-North Dakota) said as early
as 1983: "There have been some benefits from deregulation, but they
have gone largely to population centers, while the costs have gone to rural
areas." (6) Long
distance telephone rates fell 38 percent in five years, but about three-fourths
of the calls were routed through 18 major cities; for the rest of the nation,
local service climbed 50 to 60 percent. (7)
Labor unions also suffered heavily from deregulation. In 1986, Alfred
Kahn, an architect of deregulation under Carter, admitted that 3 million
union members in airlines,
telecommunications, trucking, bus transportation and other industries
had taken a severe blow after deregulation. (8) On the other end of the
spectrum, surveys in the late 80s showed that businessmen gave only qualified
support for the era's deregulation. For example, although they enjoyed
the lower air fares of their business trips, they were troubled over airline
delays, loss of routes, long reservation requirements and air safety reductions.
To be sure, some regulation in the past has been ham-handed and ill-conceived.
But this means it should be improved, not eliminated completely. A good
analogy is that of a referee who makes a few bad calls in football game.
The solution is to find better referees -- not throw them out completely.
Return to Overview
1. Donald Barlett and James Steele, America: What Went Wrong?
(Kansas City: Andrews and McMeel, 1992), pp. 106-112.
2. Ibid., pp. 112-118.
3. Study by the federal General Accounting Office, cited in "Cost
of Cable Service Up 56%," Washington Post, July 19, 1991.
4. Jeff Cohen and Norman Solomon, Through the Media Looking Glass:
Decoding Bias and Blather in the News (Monroe, Maine: Common Courage
Press, 1995), p. 3.
5. Ben Bagdikian, The Media Monopoly, 4th ed. (Boston: Beacon
Press, 1992). Gannet CEO quote is on p. 6.
6. "Deregulation Gone Haywire," Atlanta Journal and Constitution,
November 27, 1983.
7. "Five Years Later," Columbus Dispatch, December 11, 1988.
8. "Deregulation a Rough Jolt for Workers," Boston Globe,
March 9, 1986, p. A1.
9. Kevin Phillips, Politics of Rich and Poor: Wealth and the American
Electorate in the Reagan Aftermath (New York: Random House, 1990),