Director Reggie James of Consumers Union's Southwest Regional Office

Minus vigilance and oversight, deregulated markets are prone to chaos (Nov. 2002).
by Dara Pollicoff

Left to their own devices, markets tend to self-destruct in the absence of regulation, as illustrated by the recent collapses of Enron, WorldCom and Global Crossing, CU Southwest Regional Office Director Reggie James told members of the University of Texas Quest organization Oct. 15.

James' remarks centered on the main idea that regulation must fit market conditions. Without rules, watchdogs and resources, markets carry consequences with devastating effects.

James commented on recent examples of big business scandals like Enron, Arthur Andersen, WorldCom and Global Crossing to prove that corporate abuse hurts consumers. Consequently, workers lose their jobs, service suffers, and prices increase.

"Markets that you can say no to or that have substitutes do the best," said James. "The ones without substitutes that you can't say no to usually get in trouble."

Consumers end up paying for these corporate mistakes and unethical practices, and these companies create uncertainty and scare away investment in needed infrastructure.

James noted that regulation started as a substitute for market forces after powerful robber barons, trusts and monopolies took over markets and riddled big businesses with unfair advantages and problems. In the 1890's to 1930's, abuses in different markets led to regulation. A political movement in the 1980's and 90's led to deregulation. Once again, in the year 2002, history repeated itself as companies like Enron, WorldCom and Qwest have created a necessity for the regulation of market forces.

"In the accounting industry, there's no transparency of information," James said. "The industry convinced the government it could regulate itself--obviously that didn't work. Regulation is particularly necessary for a complicated market."

There are downsides to both regulation and deregulation. Regulation works well but consumers should not be surprised when it falters. Sometimes regulators and consumers disagree on the definition of reasonable, and sometimes the regulatory process contains political whims and causes businesses to become anti-competitive.

Airline companies, local telephone service, long distance, cable TV and electricity have all been deregulated in the past 25 years. Consumer dissatisfaction has followed these experiments, and the only way consumers improve these markets is through active participation and vigilance.

James offered some recommendations on how to improve several regulatory issues.

• Government needs to assume appropriate oversight.

• When markets lack competition, consumers need regulation against monopolistic practices.

• Rigorous antitrust enforcement and stronger consumer protection are vitally important in ensuring markets are fair for consumers.

He also offered specific advice to the aforementioned industries.

• Consumers need a truth-in-airfares disclosure and a passenger's bill of rights so that we take a closer look at airline safety and security issues.

• Consumers also need protection from unreasonable and capricious bank fees.

• Failure of cable and telephone companies to provide mandatory customer service and maintain standards should result in dollar penalties to encourage compliance.

• Collect tough financial penalties from electric service companies that fail to maintain sufficient generating capacity margins and reliability standards.

"There's one consistent thread in these issues," James said. If you leave most of these markets to their own devices, they'll run wild, harming both consumers and ultimately themselves. We've got to keep the cop on the beat."