Deregulation -- does it work?

Journal Record, The (Oklahoma City), Jun 13, 2002 by Marilyn Geewax

It's a crock, at least according to Consumers Union.

The government's deregulation of five major industries -- airlines, telecommunications, cable television, banking, and electricity -- has harmed customers far more than helped them, the nonprofit consumer organization said Monday.

"The promises of deregulation have not been kept," said President James Guest in an amazing example of re-evaluation, as Consumers Union originally supported airline deregulation as a way to lower prices.

Instead of promoting vigorous competition, deregulation legislation has been written in ways that leave consumers at the mercy of "a Wild West marketplace," he said.

Guest said Consumers Union conducted a comprehensive study to determine how deregulation has affected prices, consumer satisfaction, safety, choice and innovation. The study, published in the July issue of Consumer Reports magazine, concludes that deregulation has caused a sharp deterioration in service and dramatic increases in hidden fees and loopholes. The results help explain why Consumers Union's mailbags are "overflowing, stuffed with complaints" from fed-up Americans, he said.

Airline passengers are among the most aggrieved, he said. Since the government deregulated air fares, schedules and routes in 1978, passengers have had to contend with more connections, flight delays, cramped seats and limited service in smaller markets, he said.

Deregulation supporters boast that fares have been falling for the past two decades. But Guest said the study shows fares fell just as rapidly in the two decades before deregulation. Moreover, before 1978, most fares were unrestricted, allowing passengers far more freedom in planning their trips.

Guest said the study shows Congress should make a "midcourse correction" by increasing regulation of cable TV and local telephone service and imposing a moratorium on residential electricity deregulation.

Consumers Union also wants bank regulators to crack down on predatory lending and hidden fees. In addition, it wants antitrust enforcers to end the near-monopoly control some airlines have at the "hub" airports.

Consumers Union's conclusion were rejected by Fred L. Smith Jr., president of the Competitive Enterprise Institute, a Washington- based public policy group opposed to heavy regulation. Smith said that without deregulation, airline travel would still be "restricted to the upper class," televisions would get just three stations, phones would come only in black and "on Friday, you'd be frantic at 3 p.m. because you forgot to get to the bank in time to cash a check."

Today's consumer problems stem from a failure to more fully deregulate, Smith said.

"Deregulation was a process," he said, "but we froze the process halfway along," so for example, consumers are hurt by having airlines set fares, while allowing government to control airports and traffic control systems that limit capacity.

"When you free up only one part of the system, you end up with some real problems," he said.

Marilyn Geewax is a columnist for Cox News Service.