James Q. Wilson. The dead hand of regulation.
After decades of public and journalistic neglect, the government agencies that set prices, control entry, and regulate conduct in many of our most important industries have suddenly found themselves in the limelight. Owing to the efforts of Ralph Nader and other advocates of "consumerism," a considerable segment of attentive opinion has become convinced that the prosaic, often arcane decisions of these little understood commissions are not always in the public interest. Such a view is correct, and for dramatizing the fact we owe Nader and the others a debt of gratitude.
But dramatic confrontations between "raiders" and "bureaucrats," however useful in creating an issue, are not so useful in understanding the issue. Persons easily convinced that the government is not acting rightly tend to assume that it is because the government is not righteous; if industries are being regulated wrongly, then (in this view) it must be because bad people are doing the regulating. It would be unfortunate if the resolution of the regulatory issue were framed in terms of the moralistic premises that first gave rise to it.
It would be all the more unfortunate considering that a number of scholars, chiefly economists, have developed over the last ten years a substantial set of analytical tools and empirical findings which, taken together, constitute an impressive contribution to our knowledge of what happens when the government tries to intervene in the economy. Yet compared to the enormous influence of those economists who have developed ways of managing our tax, fiscal, and monetary policies, the influence exercised by the regulatory economists has been negligible. About the only serious effort to move in the direction suggested by their analyses was President Kennedy's 1962 transportation message calling for the abandonment of minimum-rate regulation in the shipment of bulk commodities on trucks, trains, and barges. The plan was buried in Congress, opposed by the truckers, the barge operators, and the rate setters (in this case, the Interstate Commerce Commission).
If the economists' success in getting their aggregate strategies accepted reaffirmed what the invisible hand of the market could do under proper guidance, their failure in getting government to accept their critique of non-aggregate strategies testified to the enduring strength of the dead hand of regulation. Paul W. MacAvoy of MIT in The Crisis of the Regulatory Commissions ( New York: Norton, 1970) summarizes the most important analyses of regulatory economics as an "accumulation of substantial quantitative findings" leading to the general conclusion that "regulation has impose considerable costs on public utility company operations without providing compensating benefits."
The problems of regulatory agencies go beyond price setting, however, and involve issues ranging from allocation (e.g., deciding who will get a television broadcast license) through the approval of business practices (e.g., deciding which firms may merge and which may not) to the control of what may or may not be broadcast (e.g., deciding whether radio stations will be allowed to editorialize or whether television stations show too much violence or too many commercials). In evaluating these and other kinds of government regulations, there are two standards one may employ-- efficiency and equity. By "efficiency" I mean that a given regulatory policy achieves a desirable objective at minimal cost; by "equity" I mean that the regulatory policy, whether efficient or not, treats those subject to it fairly--that is, treats like cases alike on the basis of rules known in advance and applicable to all.
Until the end of the 1950s, the many criticisms of regulatory commissions were generally based on rather narrow or truncated versions of these two criteria. Those concerned with efficiency tended to emphasize the problem of who would determine what the desirable social objective should be and thus to whom regulatory