Open Doors?

An Uncertain Future

Because of problems with deregulation, some states and cities have recently delayed further deregulation. Atlanta and New Orleans, for example, are reconsidering plans to privatize and deregulate their water and wastewater systems. After its previous fiasco, California's legislature is considering re-regulating the state's power industry.

Still, entrepreneurs need to be prepared for further rounds of deregulation. Many entrepreneurial companies do not prepare effectively for deregulation, and once it occurs in their industries, they squander opportunities and allow larger firms to retain some of their monopoly powers. According to Schuck, smaller phone companies in Ohio missed a window of opportunity that opened after the 1996 act was passed, in which they could have informed consumers that they were now players in the market, offering cheaper service.

Schuck argues that once deregulation happens, small companies need to initially band together to educate consumers that they now have a wider range of choices. Other entrepreneurs believe the key to surviving in a deregulated market is to find niche services to provide, thereby avoiding competing on price in an industry that, once opened up, could be swamped by thousands of new companies.

Entrepreneurs will have opportunities to test these strategies. Though some people have begun to question deregulation, it retains significant support in Washington and in many statehouses. In June, Powell, the head of the FCC, won approval from his commission to enact wide-ranging deregulation of the nation's media industry, while Secretary of Defense Donald Rumsfeld has pushed for private sectors of the military. "The trend is not going to go away," Cox says. "Eventually, we will see deregulation across the board in most industries.

By the Numbers
Deregulation can lead to more competition:

The size of the truck driver work force: 1.1 million in 1978; 1.9 million in 1996. (Source: Economic-
Inquiry)

The number of truck carriers regulated by the Interstate Commerce Commission (ICC) in 1979: 13,337. The number of interstate truck carriers regulated by the ICC in 1994, 15 years after deregulation: 54,000. (Source: ICC)

And deregulation has been actively promoted by the federal government over the past two decades, as the government has slashed its work force:

The size of the federal government devoted to regulatory activities in 1980, at its high point: 122,000 employees. The size of the federal government devoted to regulatory activities in 1990, after the first wave of deregulation: 115,000 employees. (Source: Washington University in St. Louis, Missouri).

But sometimes, deregulation can lead to excessive consolidation, increasing prices for consumers and limiting small companies' ability to compete:

Residential prices for natural gas in 1984, before deregulation: 44 percent above the wellhead price. Residential prices for natural gas in 1999, 15 years after deregulation: 181 percent above wellhead price. (Source: Public Citizen).


Joshua Kurlantzick is a writer based in Washington, DC.

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This article was originally published in the September 2003 print edition of Entrepreneur with the headline: Open Doors?.

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