Contrived Competition: Regulation and Deregulation in America.

• Author: Hausman, William J.

The last twenty years have witnessed fundamental changes in the regulatory environment in which American firms do business. Many economic regulations, instituted during the New Deal as a reaction to the extraordinary economic decline of the early 1930s and tending to identify competition as the cause of economic problems, have been swept away or altered in a manner that promotes more open competition. Stimulating competition has been seen more recently as part of the solution rather than as the root of the problem. With the recent shift of political control of both houses of the U.S. Congress to Republicans, deregulation is likely to continue to be a hotly-debated policy issue. Richard H. K. Vietor, a business historian at the Harvard Graduate School of Business, has written a timely and superb account of the history of this regulatory transformation, and the book should be instructive to managers, regulators, and legislators. It also is accessible to both undergraduate and graduate students.

Vietor offers an excellent blend of the general and the specific. The introductory chapter considers in broad outline the formation of the regulatory regime that lasted until recent times. The 1930s were perceived as an era in which competition failed. The microeconomic policies of the New Deal created an era of intrusive regulation, especially for industries "affected with a public interest," including transportation, utilities, and financial institutions. This regulatory regime seemed to work well through the expansion of the 1940s and 1950s, but began to break down during the economic difficulties of the 1960s and 1970s. Inflation induced during the 1960s by federal funding of both Great Society programs and the Vietnam War created strains in many regulated industries, which found themselves in the unusual position of having to raise prices, which activated various consumer groups and put stress on regulatory bodies. The energy crisis of the mid 1970s and its gross mishandling by the federal government placed further strains on the system of regulation. This led to a political perception that regulation had failed. The perception. was bipartisan, with initial impetus coming from Senator Kennedy and President Carter and continuing under Presidents Reagan and Bush (although with much less vigor). The pressure for deregulation is likely to continue in the immediate future.

This broad historical discussion is followed by four case studies of...