Advantages & Disadvantages of Deregulation
Advantages of Deregulation:
a. Competition: Deregulation lowers barriers to entry in a given industry. It promotes the spirit of competition within industries or economic sectors toward the production and provision of quality goods and services. When more firms enter an industry, competitions increase and consumers have more choices for products and services.
b. It permits the existence of a free market economy where private individuals are allowed to take part in economic decisions in the country.
c. Deregulation helps to encourage the implementation of personal ideas and initiatives towards the economic growth of a country.
d. There is the promotion of effectiveness and efficiency in the production and distribution of goods and services in the country to satisfy the needs of the customers.
e. 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.
f. Generation of Employment: Deregulation makes it easier for private individuals to set up industries which can generate employment.
g. Deregulation paves the way for quick economic growth and development of a country due to the effectiveness and efficiency of operatives by players.
h. It boosts the capital base and availability of funds in deregulated businesses. It permits more shareholders to invest in the business thereby promoting a greater capital availability in the sector.
i. Steady supply of goods: Deregulation ensures a steady supply of goods to customers as against government control of industry.
j. It helps to increase the volume of international trade.
k. Reduced Bureaucracy: Society can benefit from a reduction of bureaucracy. Resources not spent on regulation can be channeled to other programmes.
l. Consolidation: Deregulation aids industry consolidation for instance, a 1996 law allowing out-of-state holding companies to buy banks allowed strong banks to acquire weaker-performing banks.
m. Reduced Bureaucracy: Society can benefit from a reduction of bureaucracy. Resources not spent on regulation can be channeled to other programmes.
Disadvantages of Deregulation:
a. It removes the government’s total control of the economy because their rules and powers on the control of businesses are reduced.
b. Consumers are likely to get exploited by private enterprises in a deregulated economy since the government no longer has significant control and no longer regulates the private sectors to reduce the excesses.
c. It opens the economy to a complete takeover or domination by private enterprises since government rule and powers are almost non-existent.
d. It makes the country a dumping ground for all manner of goods from other nations.
e. The wealth and national income will be concentrated in the hands of a few individuals.
f. It may lead to the death of local industries due to indiscriminate importation of foreign goods.
1. Explain the genesis of deregulation, especially in the petroleum industries.
2. State five advantages and five disadvantages of deregulation.
3. Discuss the reasons why the government of a country will decide to embark on deregulation of policy.