Management Lessons from Deregulation

By Horton, Thomas R. | Management Review, March 1989 | Go to article overview

Management Lessons from Deregulation


Horton, Thomas R., Management Review


MANAGEMENT LESSONS FROM DEREGULATION

Deregulation. Simplification. It's hard to be opposed to such concepts, yet even harder to make them work. Shortly after President Reagan's first inauguration, he promised to do something about the "vast web" of government regulations. Yet over the past eight years, regulations continued to grow.

The 1986 Tax Reform Act, sold to the public by its promise of fairness and simplification, removed from the tax rolls 3 million people but added 6 million others--as well as new, complicated reporting requirements. The follow-up Technical Corrections and Miscellaneous Revenue Act passed last year--the twelfth significant tax bill in eight years--extended some tax breaks and provided new ones; to pay for these, it raised other taxes by over $4 billion. As a result, the new, "simplified" IRS Code, which already exceeded 2,000 pages, continued to grow--as did federal regulations. As with earlier efforts at deregulation, tax "simplification" yielded complexity.

Even good medicine (or, in this case, good intentions) may have bad side effects, and it is these that the new administration now must face. As former chairman of the Task Force on Regulatory Relief, President Bush should have some grasp of the enormous problems that lie ahead, even though his group was disbanded in 1983. Ironically, the most significant deregulatory statutes on the books were Carter administration initiatives--for example, the Airline Deregulation Act of 1978, an enormous piece of unfinished business. The deregulation of interest rates on savings accounts also goes back a long way, to the Garn-St. Germain Depository Institutions Act of 1982, of which the potential effect on taxpayers is appalling to contemplate. Both cases illustrate the results of massive, yet partial, deregulation. The necessary homework--that is, the projection of probable consequences--either was not done or was set aside for political reasons. And though potential side effects have become gigantic realities, they have yet to be confronted.

In air travel deregulation, for example, airports continued to be subject to multijurisdictional regulation. As one airline official remarked, there is now "too much aluminum and not enough concrete." Still, since deregulation there have been real benefits, including a 30-percent decrease in fares per mile, according to deregulation advocate Alfred Kahn, which led to a 42-percent increase in domestic commercial air passengers through 1987, according to the Federal Aviation Administration. Last year one airline's CEO quoted the wry remark of a flight attendant: "The passengers are no longer up to our standards." Certainly the joy of flying is not up to its previous standard. Yet airline productivity has sharply increased, partly because of the "hub strategy," through which air carriers serve cities along their spokelike routes.

As I frantically run through a hub airport to switch planes, my mind turns to the highly efficient system of Federal Express, which ships my overnight mail from New York City to Boston (or yours, perhaps, from San Francisco to Los Angeles) via Memphis. Whenever the hub is unreasonably distant from my destination, I wonder whether the airline has come to regard me as just another package in transit rather than a charter member of its freaked-out-flyers' club. Once aboard a full-fare, sans ambience flight, I am served a mystery meal the attendant describes thus: "It's a cheese dish, I think; no . . . maybe chicken!" No longer hungry, I watch a nearby passenger try to divine the lowest fares for an upcoming vacation with her laptop computer. After landing, I file a claim for lost luggage.

In short, airline deregulation's benefits have been counterbalanced by the many side effects suffered by passengers. Still worse, air traffic control systems, which appropriately--and thankfully--still are regulated, are strained to capacity. …

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