Phony deregulation - Fwd: James Bennett's UPI Column for 01-26-01

From: Russell Whitaker (
Date: Fri Jan 26 2001 - 15:40:24 MST

Interesting points re: partial deregulation not being
better than no deregulation at all.

Jim can be reached at


>From: "James C. Bennett" <>
>To: "James C. Bennett" <>
>Subject: James Bennett's UPI Column for 01-26-01
>Date: Fri, 26 Jan 2001 16:35:19 -0500
>James C. Bennett
>HALF A LOAF SPOILS THE SOUP: The Problem With Phony Deregulation
>Copyright © 2001 by United Press International
>Back when the failures of socialism were numerous and obvious, the free
>market seemed like a readily available solution. Rather than let the
>government try to set prices, either for its own enterprises, or private
>ones it regulated, all that was needed was to either privatize the
>business, if it was government-owned, or deregulate it, if it were
>already private.
>After two decades of privatization and deregulation, real and phony, we
>can now look back and learn from the various successes and failures.
>And what we learn is that half a loaf, in deregulation, is not better
>than none. Privatization and deregulation are both intended to result
>in the creation of a competitive private marketplace where several
>competing service providers have better access to capital (and thus
>better, more modern facilities) and better, cheaper service. Taxpaying
>companies with soaring stock prices and happy customers replace
>tax-absorbing white elephants with dissatisfied consumers. What we find
>is that when these processes are well-designed and well-executed, they
>work, and these benefits are created.
>However, the past two decades of market reform attempts have also
>created some enormous messes. The California power blackout, a direct
>result of a botched deregulation scheme, is only the most recent
>example. Other such messes include the British railway privatization
>scheme, the S&L scandal, and aspects of the American air transport
>system and American telephone divestiture. Each of these in turn has
>been held up as an example of the failure of deregulation or
>privatization; in fact, when you look at them, what they each illustrate
>is political failure, not market failure.
>In California, some dim bulb (so to speak) had the amazing concept of
>deregulating the prices power companies would have to pay to power
>suppliers for their power, without deregulating the price at which they
>could sell power to consumers. They were supposed to make it up by
>charging more to business customers, so that, in effect, businesses and
>(ultimately) their customers would subsidize the cost of energy to
>consumers. (This is exactly how phone service works in the US today).
>Unfortunately, this stealth tax did not work (partly because businesses
>just did not buy a large enough percentage of the power used in
>California) and the power companies are going bankrupt.
>In Britain, the sluggish and perennially money-losing nationalized
>railway system was privatized in the early Nineties. However, it was
>privatized in an ingenious way, which proved to be a little too
>ingenious. The track was given to one nationwide company to operate,
>and the trains were contracted out to a series of regional operating
>companies. The operating companies paid tolls to the track company.
>Unfortunately, what ended up happening was very similar to the big
>problem with American telephone deregulation. The local companies were
>still monopolies, and the split of responsibilities in what was once a
>unified system allowed each company to blame the other for their
>problems. Every American telephone consumer has gone through the
>frustrating experience of having the repairman say "thatís an inside
>wire problem, not an outside wire problem" (and therefore not our
>problem at all). British rail passengers have started to hear "Itís a
>track problem" from the train companies, and in reply "Itís a train
>problem" from the track companies.
>What is most likely is that neither system, designed by judges and
>politicians, was anything like what the market would have produced if it
>had never been regulated or nationalized. America probably would have
>had three or four nationwide, competing telephone systems each offering
>what the customer really wants: a total, end-to-end solution including
>local and long-distance service with decent maintenance. Britain would
>probably have had two nationwide, competing rail systems organized in
>the conventional manner: the company that runs the trains also maintains
>the track, and is held responsible for everything. Even Amtrak
>demonstrates the logic of this solution: its service in the Northeast
>Corridor, where it owns its own tracks, is substantially more reliable
>than elsewhere, where it runs on tracks belonging to freight railroads.
>Even more subtle are cases where most people donít realize that part of
>a system has not been deregulated or denationalized, because they donít
>think of it as a system. When the US savings and loan system was
>deregulated, most people were not aware that the other half of the
>system, the deposit insurance system, was still nationalized, and in
>essence gave the S&Ls the equivalent of a blank check from the
>taxpayers. Similarly, when airlines were deregulated in the US, the
>other two parts of the air transportation system, namely the air traffic
>control system and the airports, were left in the hands of government.
>The airlines did their part well ? they delivered many more flights at
>much lower fares. The government-owned parts of the system utterly
>failed to keep pace. This failure is at the root of almost all airline
>problems today, including the difficulty of establishing new
>competition, due to the lack of gate space and takeoff slots, both
>rationed by government. Meanwhile, privatization of airports (as in
>Britain) and air traffic control (as in Switzerland) has been a huge
>Politicians everywhere are finding privatization and deregulation a
>convenient scapegoat for their own failures. But only if people are
>stupid enough to fall for their lame explanations. Letís hope the Bush
>Administration ends the game of supposed "deregulation" without

Get your FREE download of MSN Explorer at

This archive was generated by hypermail 2b30 : Mon May 28 2001 - 09:56:25 MDT