Deregulation of Public Enterprises

What is Deregulation?

Deregulation is the process of reduction or elimination of government power or restrictions on a particular industry to improve business operations and increase competition. It entails the process of removing or reducing state regulations in the economy to enable the industry to compete globally.

Merits of Deregulation of Public Corporation:

(i) It stimulates economic activity because it eliminates restrictions for new businesses to enter the market, which increases competition.

(ii) Since there is more competition in the market, it improves innovation and increases market growth as businesses compete with each other. When more businesses compete with each other, prices go down for consumers.

(iii) Companies no longer need to utilize resources and capital to meet restrictions and comply with regulations. In turn, they can use the resources to invest in research and development.

(iv) Businesses can operate without worrying about restrictions and regulations to govern them. They are allowed to develop new products, set their own prices, venture into foreign countries, purchase new assets, and interact with consumers without restrictions to hold them back.

Demerits of Deregulation of Public Corporation:

(i) Loss of investment by Ordinary Investors: It tends to lead to an unfair and unpoliced market where ordinary investors may not be able to have profitable returns on their investments, thus allowing asset bubbles to build and burst, leading to crisis and recession.

(ii) Loss of Confidence in Investors: Financial market operators may no longer have confidence in investors due to failure to honour repayment of loan facilities.

(iii) Monopoly of Business: Deregulation may create a private firm with monopolistic tendencies. Certain sectors of the economy may be under the tight grip of rich investors to the detriment of the consumers, which may lead to high prices of goods and services.

(iv) Poor Service Delivery: It could lead to a compromise of public services with poorer quality products.

(v) Unfair Competition: It may be difficult to create effective competition in a particular industry due to high barriers to entry.

(vi) Social Concerns are Lost: Businesses will ignore the damage done to the environment since they do not pay the costs.