What is Deregulation and how does it Work ?

Deregulation is the phenomenon wherein governments signal their intention to leave the market economy to the market forces and not stifle it and constrain it with myriad laws, rules, and regulations.

Deregulation entails overseeing and supervising the economy in a manner that would largely be a hands off approach combined with oversight over its functioning related to legal and compliance aspects alone.

In other words, deregulation means that the governments do not interfere with the businesses in a day-to-day manner and act only when specific complaints against businesses are brought before them.

Further, deregulation also means that governments do not set prices or put in motion price controls leaving the process of determining the optimal pricing to the market forces of demand and supply.

Deregulation has been in vogue in emerging markets or the developing countries ever since the 1990s when these markets began to globalize their economies and open them up to foreign competition as well as liberalize their economies internally so that domestic firms are able to compete freely without the heavy hand of the state. This means that instead of the heavy hand of the state, markets are left to work according to the invisible hand of the market economy.

The Advantages of Deregulation for Businesses

Deregulation brings many advantages to businesses.

First, the businesses are left to themselves to determine their operational processes and strategic imperatives without the government interfering in their working. This means that they can launch new products, set prices according to demand and supply, expand into newer territories and regions, acquire land and other fixed assets without having to take a thousand permissions, and finally, the businesses interact and interface with the consumers directly without the state setting the agenda or the action plan.

Further, deregulation in an emerging market economy also means that the state is at last giving full play to market forces as opposed to centralized planning those results in greater efficiencies for the businesses and more profits as well. This is the reason why many businesses welcome deregulation with open arms and exhort the governments to decontrol and deregulate more sectors so that the private companies would have the chance to bring in efficiencies and actualize synergies leading to a win-win situation for both the businesses and the consumers.

Apart from this, deregulation also means that businesses can focus on their core competencies without having to submit themselves to constant scrutiny and constant pressure from the government.

The infamous “License-Quota-Permit” system that emerging markets had until the 1990s meant that businesses had to apply for licenses for even the most mundane things, were constrained by quotas that determined how much they can produce, and had to take permits even for the smallest expansion.

The Advantages and Disadvantages of Deregulation for Consumers

Deregulation brings both advantages and disadvantages to the consumers. Unlike the mostly benefits that deregulation has for businesses, there are some pitfalls of deregulation for the consumes.

If we look at the advantages first, consumers benefit because they have more choices and hence, can affect the demand for a particular product by switching to competitors when they find the products as inferior or pricey.

Further, deregulation also benefits the consumers because they can participate in efficient purchase and efficient consumer behavior as well as be rewarded with superior customer service, as the customer is the king in a market economy.

However, there are some disadvantages as well as consumers might be hit with the side effects of too much liberalization in the form of the businesses having more power than before leading to arrogance towards the consumers, especially those who cannot pay more for products because of their socioeconomic condition.

The point here is that deregulation impacts those at the bottom of the economic ladder most as without the protective hand of the state; they might left at the mercy of the profits first businesses who care more for their profits rather than social and environmental responsibility.