11/23/2017

Jan. 7, 2002: I Usually Leave Economics Lessons to the Professors

but I feel compelled to state an untold truth about the deregulatory environment in our country: Deregulation isn’t necessarily in your interest. Deregulating industries and markets is in the interest of the corporations, their largest customers and people who own the company’s stock. (Everybody who wanted natural gas deregulated, please raise your hand.)

In the early days following the breakup of the Bell System, a group of Baby Bell CEOs met with a member of Congress to plead for less regulation. The congressman was clearly dubious and asked what new services the companies would offer their customers if freed of regulatory restraints. There was a short pause, and then one executive blurted out, “Whatever would make us money.” Give him high marks for being honest, even if not politically astute.

I was in Washington during the days when airline deregulation was being rammed through Congress, amid glowing predictions from economists and industry executives about how unfettered competition among the airlines would benefit the American public. Fritz Hollings, the irascible senator from South Carolina, was totally unconvinced. The day the law goes into effect, Hollings said, the airlines will drop small cities from their routes and concentrate on the largest markets. History has proven Hollings more right than wrong.

Am I advocating more government control of private industry? Absolutely not. We already have more government bureaucrats than we have tasks for them to do. I am saying that as much as we all would like for things to be black or white, deregulation has a lot of gray in it. It isn’t all bad but it isn’t all good, either.

When we deregulate our airlines, our trucks, and our gas, electricity, telephone and cable services and let the free market work, three things tend to happen. First, as Senator Hollings correctly predicted, deregulated businesses tend to follow the Willie Sutton economic theory. Sutton, a notorious gangster of the 1930’s was asked why he robbed banks. “Because,” he said, “that is where the money is.” In the deregulatory world, companies make more money from large commercial customers and companies would rather ply their trade in the Atlantas of the world than the the Hahiras. Shareholders, many of them large institutions, are looking for bottom-line results. That, friends, is the bottom line.

Second, while the clarion cry of those companies pushing for deregulation is “more customer choice”, fewer companies are offering us fewer choices these days. The seven Baby Bells brought forth from Ma Bell in the bright promise of telecommunications competition just 18 short years ago are now four, with two-thirds of the local phone lines in the country under the control of two companies – Verizon and SBC – and more consolidation is certain in the future. Cable systems, freed from regulatory pressures, are raising rates faster than they are raising the quality of their customer service. Our choice of airlines has diminished to a handful of carriers who dominate the major hubs, controlling prices and discouraging competition.

Third, in their enthusiasm to increase profits and satisfy their shareholders, companies will enter businesses about which they know little, if anything. Witness the plethora of marketers that fell on their collective faces after promising us the moon when the natural gas fiasco began. Witness AT&T’s less than impressive foray into cable television. Two decades ago, The Phone Company was the very model of superb service, as well as being a good citizen in every city and hamlet they served. Today, AT&T is fighting for its corporate life and you and I aren’t necessarily better off for it.

The genie is out of the bottle. Deregulation is here to stay. But industry needs to level with us when they talk about the benefits of deregulation, which is primarily for their stockholders and their big customers. The rest of us are somewhere down the food chain.

A newspaper reporter recently asked the CEO of a corporation that is vigorously pursuing deregulation how he would determine if his company would make further acquisitions. His answer was telling. “At the end of the day,” he was quoted as saying, “will your shareholders be better off?” Not the customers. The shareholders. Willie Sutton would have been proud.