Regulation vs. Deregulation. This is a hotly contested topic that has been given intensive media play in the wake of the global economic crisis and the practices that are alleged to have led to it. The arguments for and against both positions are built on a lengthy history, and people are fundamentally divided. Of course, the issues pertaining to government regulation are vastly more complex. At the risk of presenting an over-simplified, Elle Woods-style case, the bottom line is that regulation is good and deregulation is bad, especially when it comes to the economic and financial sectors, as demonstrated in recent events in the U.S. and Canada during the global financial crisis. If only it could all be so simple. That valuation may be fine and dandy, but are all the Canadian regulations in place serving us well? What does it even mean, really?
The Merriam-Webster Dictionary defines deregulation as, “the act or process of removing restrictions and regulations.” In terms of economics, regulations are outlined and enforced by governments in order to exercise some degree of management over market forces. They are intended to protect institutions like banks, to insure healthy competition in markets in order to protect consumers, and generally prevent complete economic collapse. Deregulation does not mean killing laws against fraud, but easing government control of business operations that constitute a more laissez-faire, free market. It is not to be confused with liberalization, which involves introducing more entities into markets, because liberalization can maintain government regulations and protection of consumer rights whereas deregulation involves the removal or relaxing of such controls.
Alan Greenspan, chairman of the U.S. Federal Reserve from 1987 to 2006, has been attacked for the deregulatory policies he implemented. Many economists and politicians blame deregulation for the financial crisis, arguing that the whole debacle could have been prevented. The Fed is equivalent to the Bank of Canada, our nation’s central bank, which operates under the mandate “to promote the economic and financial welfare of Canada.” Both are responsible for monetary policy, federal currency, and overseeing the financial system.
The difference is that in Canada, our central bank has maintained a policy of regulation and has successfully avoided the level of economic hardship experienced in the U.S.. A report released at the end of January by a bipartisan U.S. investigative panel serves as a harsh criticism of the deregulation policies Greenspan advocated. The report quite clearly states that the government had the ability to avoid the 2007-09 financial crisis that has had global repercussions; it just decided not to. Illustrating the highly contentious nature of this issue, the report was only endorsed by the six Democratic members of the Commission. Three Republican members published a competing report that states: “U.S. monetary policy may have contributed to the credit bubble but did not cause it,” and the fourth Republican member issued a report that finds the actual root of the crisis lay in U.S. housing policy adopted in the early 1990s. So the merits of regulation as opposed to deregulation are very much tied to ideology, yet clearly all sides agree that deregulation policies were a factor that contributed to the economic collapse. And there is no disputing as to the severity of the financial crisis. In 2009, current U.S. Federal Reserve Chairman and Great Depression expert Ben Bernanke said, “As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression.”
While Canada obviously suffered, we fared much better than our southern neighbour. In an interview with Prime Minister Stephen Harper in 2006, a Fox News host noted that Canada’s strict banking regulations ensured that no Canadian banks needed a bailout — the only Western country that fared so well. He also asked if Harper was concerned that regulation was impeding the innovation and risk-taking that occurs in a more free market, the main argument of deregulation supporters. Harper’s answer helps prove the point that regulation is best. As he stated, in reality Canada emerged from the financial crisis “probably with the only truly free market financial system in the world.” Those of you who have signed the petition to prevent ISPs from switching to Usage Based Billing, paying for every byte you use, have regulations to thank for its expected success. Although the CRTC made the recommendation, if not for the policies of regulation in place in this country, ISPs would be able to make any changes they desire without limitation. Like grounding a misbehaving teenager when he or she disobeys the rules, regulations work to protect consumers from big corporations, and protect financial institutions from themselves.
