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Why Total Deregulation is bad for the Economy

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Outline

Introduction:

Talks generally about what deregulation is and the scope of the word.

Body:

It talks about the negatives of deregulation. Each point is explained in one paragraph except one point that covers two paragraphs.

The upper side or deregulation

A small counterargument is given. It supports deregulation. Since it is only one, it brings out the weakness of deregulation

Conclusion:

It summarizes the whole essay stressing the negativity of deregulation.

Why Total Deregulation is bad for the Economy

The word deregulation when applied in abroad sense means more than letting Wall Street get away with questionable financial deals. It means the elimination or removal or simplification of the business operation procedures. There are a number of people within and without the business world who are strong proponents of deregulation. They stand for the removal of government control of business in terms abolishing all the control mechanisms that have been put in place to ensure that business is done in the required way without getting anyone hurt. The areas where deregulation can be carried out ranges from the top financial operations to the small businesses. This means that even the business sphere of the local shopkeeper can undergo deregulation. Deregulation is always a negative move and it avails a negative business atmosphere for businesses and the ultimate result is that it hurts the whole national economy. In this paper, I will show the various ways in which deregulation is bad for the economy of any country (Garten 62).

To start with, deregulation leads to the out competition of small and medium level enterprises by the economies of scale or large companies that have the resources to economically push these small establishments out of the business environment. This is possible because of the absence of government to limit the depth to which the big corporations can go so as to leave enough space for the development of small businesses. Given that in most economies of the world, the United States included have more small businesses than large businesses, killing them from the economy means the increase in poverty as a result of a reduced Gross Domestic Product. This will mean reduced standards of living and the increase in the evils that come with poor economic performance such as crime and the rise of poor quality housing popularly known as slums.

Leaving the above aside, we can have some instances where deregulation can extend to areas that are key or sensitive to the extent that they cannot be left in the hands of the private sector. The government is the only body with the sufficient sense of responsibility to provide these services or goods. But when deregulation goes deep to the extent that all these areas are left open for private individuals and companies to come in and provide the services, the rules of the game change dramatically and the possibility of things getting done in a manner that can harm the citizens economically or otherwise goes up. The services that the government would have supplied to every part of the economy can end up going to just a few selected areas. The products can also be supplied in inferior quality and end up causing problems such as health concerns in the case of food or they can be overpriced making them inaccessible to the poor populations in the country. It is also possible for the supply of the services or goods in question to cease completely due to lack of ability of the entity that had initially demonstrated that it was in a position to supply the same. This can be as a result of drastic market changes that can easily harm weak enterprises but are not big enough to shake the government.

Deregulation also has the negative quality of making it too easy for illegal goods and services to get into the system. Most areas where deregulation has been enforced are characterized by the presence of bad practices such as drug dealing and money laundering. The too little involvement of the governments of these nations has been cited as the biggest reason for these bad activities simply because the government is too removed from the economic system thus making it very hard to know when bad practices are taking place in a bid to stop them. The negative effects of these bad business practices are always adverse as far as the economy is concerned and the fact that they are not controllable in a deregulated business society creates more problems for the economy.

Perhaps the most recognized consequence of deregulation is the global economic crisis that began from Wall Street .The absence of control on the banking industry led to the collapse due a number of malpractices. This collapse reverberated throughout the American economy and later throughout the world economy. The bankers who got excited with the freedom decided to mishandle the hedge funds of members and fail to follow all the right channels in the mortgage industry (Wallison&Ely 33). The chief executives also went ahead to pay themselves huge salaries and bonuses even in instances when the companies and financial institutions that they were leading were making loses a behavior that further weakened institutions that were already in a financial mess. What ended up happening is that the weakness of the institutions stretched beyond control and the economy had to cave in. The banks were making huge losses, investors were losing their investments and house values went down beyond business imagination. Traditionally strong companies such as Chrysler had to seek for financial bailout so as to keep their balance sheets liquid and the companies afloat as a way of trying to limit the too much negative impact on the economy (Roussakis 19-21).

Given that by the time the government was intervening in the cases of the United States of America it had already gotten too late, the negative consequences had to be felt. Job losses have been going up and the creation of new jobs is a big problem. The citizenry has gotten scared and it will take time for them to get the required confidence to come out and start spending again. The other areas of the economy have also gotten affected and it is not possible to find a place whether under the control of the private sector or the government that is untouched by the recession. Recovery will take time and this means that the citizens who are already out of their jobs will remain unemployed for a longer period and since the United States has a big impact on the world economy, the rest of the world has felt the crisis and they are struggling with the same problems too. This is especially bad for the third world where a slight economic crisis leads to riots where people are killed and others displaced (Selgin 26-29).

Deregulation is also partially responsible for the climate mess whose consequences we have started witnessing. The lack of controls on the way waste is supposed to be treated before it is released to the various dump sites has led to the release of too much toxic waste to the atmosphere. It is not unusual to be a victim of smog in such cities as Los Angeles in California as well as Pittsburg in Pennysylvania.The effects of the negatively changed climate can be witnessed in the frequent floods we are witnessing around the world, the extreme droughts in other parts as well as the acid rain that is received in some parts of the world. The increase in heat under what is generally describe as global warming has affected sea and ocean levels and we are likely to see more adverse effects in the future. The Environmental Protection Agency has already established that a high concentration of carbon dioxide in the atmosphere is responsible for global warming.

Far from the above, deregulation can endanger the security of a country by losing control of not only its national economy but also strategic areas that are sensitive to state security. If the market for business operations is too open, it means that everyone can participate. A country that ahs interest in undermining another country especially with the rise of terrorism can easily take over some key areas of the economy under the cover of private investors and then go ahead to stop the production of that commodity completely so as to brew trouble for that country. Other possible ways of misbehavior can include the production of poisonous products and the employment of foreign staff or workers thus weakening the employment position of the nation for its citizens.

Another major setback for the economy that is being associated with deregulation is the flight of capital. In economies where foreigners can establish businesses without being subjected to modest rules and regulations, the foreign enterprises always come into the national economy and establish their businesses. The run for a while after which they move away to their countries of origin or different countries. The movement can be because of a number of reasons but what will have happened is that they will have operated in that particular country, made profits and taken them away. This ends up weakening the countries that allowed these foreign businesses to operate within their borders without firm regulations on moving in and out.

It has also been observed that in areas where deregulation is the common practice, human resources are not rewarded on the basis of merit. Due to the lack of a force to press for competence as a prerequisite for holding a certain portfolio in a company that is key to the economy, the underqualifed majority shareholders can dictate and even take over the leadership of the companies leading to collapse. This is not the case when the government is in control and has a law that clearly states who should run a particular enterprise when it has a certain level of significance to the national economy.

The upper side of deregulation is of course the attraction of competition that can lead to better services and more growth but compared to regulation, deregulation is more likely to bring more problems to an economy than regulation. The most important thing is that the regulation that is being supported in this essay be done with careful attention to market sensibilities so as to avoid overregulation that can hinder growth (Cummins 11-12).

In conclusion, deregulation can be harmful to an economy. The problems facing countries that have had moments of deregulation in their business history such as the united states of America include the out-competition of medium and small business enterprises, the exposure of citizens to bad business practices, the possibility of illegal business taking place and financial market breakdown. Other possible ills that arise from deregulation include negative climate change, the endangering of state security, the flight of capital from a country and the disregard of merit in the picking of company leaders. Even with the upper side of being able to promote competition and therefore growth, it still has so many problems.  Indeed deregulation is the source of most of the problems we are witnessing in the major economies of the world and with the economic crisis the world is experiencing, world leaders have learned their lesson.

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