Benefits of deregulation

Written by jason reeher
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Benefits of deregulation
Proponents of deregulation say that less bureaucracy is better for business. (eskaylim/iStock/Getty Images)

Deregulation refers to a decrease in central or local government oversight of industries and business. Characterised by the repeal of laws that restrict trade and competition, deregulation is a major component of the capitalist economic model. Proponents of deregulation cite systemic economic benefits; industries may become more efficient in deregulated economies.

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Competition

Deregulation lowers barriers to entry in a given industry. When more firms enter an industry, competition increases and consumers have more choice of products and services. Individual businesses tend to reduce prices to achieve a more competitive position in the market.

Cost savings

Deregulated industries provide cost savings to customers. By greatly reducing or eliminating tariffs, deregulation can lower prices; company profits increase and cost savings can be passed on to customers.

Reduced bureaucracy

Society can benefit from a reduction in bureaucracy. Resources not spent on regulation can be invested in other programmes.

Consolidation

Deregulation aids industry consolidation. For instance, laws allowing foreign holding companies to buy banks allowed strong banks to acquire weaker-performing banks.

Considerations

Even proponents recognise certain pitfalls of deregulation. For example, the banking crisis that began in 2008 was in part caused by deregulation of banks in the 1990s. Laws allowing banks to sell exotic instruments, such as mortgage-backed securities, complicated the crisis when valuing those securities became excessively difficult.

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