Myth: Deregulation promotes competition.

Fact: Deregulated competition eventually leads to monopolies.



Summary

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.



Argument

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:

• 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, but survival.
• Corporations become desperate to cut costs wherever possible to maximize profits.
• 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 deemed low-profit.
• In the final stages, a monopoly or oligopoly emerges, after which prices are raised, services dropped, quality reduced, and corruption and abuses of power become commonplace.
• 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.

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.

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. (2)

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 industry.

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 better.

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. (9)

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.

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Endnotes:

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), pp. 99-100.