President Obama issued a new executive order on Friday aimed at promoting competitive markets. Competition – whether it is for talent, products, customers, jobs, etc.—can effectively “regulate” workplace conditions, prices and quality, and reward innovation. Thus, the President’s request that federal agencies “identify specific actions that they can take in their areas of responsibility to address undue burdens on competition” is welcome.
Deregulation in the 1970s and 1980s opened up markets to competition
Whether the order lives up to its potential depends on how it is implemented, however. While the Council of Economic Advisors (CEA) issue brief accompanying the order notes, “a long line of economic literature argues that competition among firms benefits consumers via lower prices,” it does not acknowledge that it was the wave of deregulation in the 1970s and 1980s that removed anticompetitive regulatory constraints on telecommunication and transportation markets. The resulting competition generated real gains—and not just reallocated benefits—for consumers and for society as a whole, and allowed those sectors to evolve in beneficial ways that were not anticipated prior to deregulation.
Resurgence of anticompetitive 1970s-style regulation
Recent years have seen a resurgence of the anti-competitive “economic regulation” that the U.S. successfully abandoned almost 40 years ago. Regulations under the Affordable Care Act and Dodd-Frank Act, for example, limit prices, control entry, and constrain service quality. The flurry of standards mandating the energy-efficiency of appliances and fuel-economy of vehicles restricts consumer choices. And, many would argue that Federal Communications Commission’s net neutrality rules and the Department of Labor’s fiduciary rules—two areas that CEA chairman Jason Furman and National Economic Council chairman Jeffrey Zients highlight in a blog post as illustrating the “pro-competition progress” on which the executive order will build—are indeed anticompetitive, limiting the arrangements that could emerge from competitive markets, and potentially harming innovation.
Focus on removing regulations that restrict competition
As the agencies develop their plans pursuant to the executive order, they should identify where their own regulations limit competition and constrain the ability of willing buyers and sellers to enter into agreements. The late Alfred Kahn, who did more than any other economist to promote competition and deregulation in the 1970s, was asked as Chairman of President Carter’s Civil Aeronautics Board to describe what the airline industry would look like once it was deregulated. He responded, “if I knew what was the most efficient and rational arrangement, I’d continue to regulate,” adding that a major benefit of competition is that it produces unexpected outcomes. We can only hope that some regulators have the good sense to respond to President Obama’s new executive order this way.