For a generation, regulation has been a dirty word in politics unless it had the prefix "de-" attached to it. I think the Wall Street Journal's story today is a sure sign that we're out of the woods and headed toward sensible oversight of corporate America (and its global tradng partners). The Journal places the impetus for the movement away from the deregulation mantra at the feet of a series of major disasters that have made news in the past year or so:
Democrats, and even some Republicans, are blaming lax
federal supervision for safety problems with products ranging from
all-terrain vehicles and lead-tainted toys imported from China to
poorly operated nursing homes and faulty emissions controls at
coal-fired power plants.
The powerful House Energy and Commerce Committee wants
to bolster the power of food and pharmaceutical safety agencies, after
the largest beef recall in U.S. history last month, recalls of
contaminated spinach, peanut butter and pet food last year, and recent
deaths linked to batches of the blood thinner heparin whose active
ingredient was manufactured in China.
When lawmakers return from their spring recess March
31, they plan to begin work on what could be a sweeping overhaul of the
financial regulatory system.
Not that it matters too much, but I actually think that the shift probably began in full force when electricity deregulation decimated California, with surgin prices and rolling blackouts back in 2000-2001. The subsequent convulsions in the financial markets that stemmed from energy companies' implosions (Enron being the most catastrophic, but not the only) confirmed that leaving vital economic services in the hands of unregulated companies was not a good idea.
In the beginning, the axiomatic defense of all things deregulation led commentators to alternately describe the spiraling energy crisis in California as either a parochial California problem that proves supply and demand theories (California's hot-tub loving energy hogs) or a case, as Enron's Chairman argued, of not enough deregulation.
But the arguments didn't hold (as the data proved -- see our "Hoax" report) and in the end, the only thing that stopped the blackouts and soaring rates was a regulatory clampdown. This included blocking unregulated market transactions between big business and power companies (known as "direct access") and, more significantly, the capping of wholesale power costs by the Federal Energy Regulatory Commission. By the time all was said and done, the Reaganite view that deregulation, and only deregulation, should govern the American marketplace was unquestionably in doubt.
As USA Today reported in 2002:
California's electric power crisis reverberated on Capitol Hill Wednesday as attorneys for fallen energy giant Enron
acknowledged deception in past electricity trading practices, and a key
federal regulator vowed to make Western energy markets fair.
"This is not what I have in mind when I talk about the benefits of
a competitive energy market," said Patrick Wood III, chairman of the
Federal Energy Regulatory Commission (FERC), which regulates the
wholesale power market.
The fallout continues to spread from Enron's
questionable trading practices and California's energy meltdown, which
will cost the state, consumers and businesses tens of billions of
dollars in energy overpayments and bailout money for its utility companies.
As the finger-pointing quickens from Washington to Sacramento,
analysts, lawmakers and consumer groups debate whether deregulation is
a villain or an ally. Did the deregulated market in California fuel the
wild trading by energy brokers, as Enron
critics contend? Or, as the energy industry argues, can free-market
trading keep energy prices low, and can regulators be counted on to
stamp out illegal or manipulative behavior?
The passage of the corporate overisght law known as Sarbanes-Oxley (two months after this USA Today story) was the first major act of Congress in the direction of re-regulation. Today's reporting on responses to tainted toys, beef and mortgages this year seems to make it clear that the era in which challenging deregulation was akin to commiting political suicide has finally come to a close.
That said, the fight for reform will not be a cake-walk. Head-in-the-sand lobbying associations like the US Chamber of Commerce will continue to resist regulation in any form. (As WSJ explaines: "The Chamber and the National Association of Manufacturers have stuck largely to an antiregulatory agenda.")
But, for the first time in a long time, they will be on the defensive side of discussions about regulation. And I hope and suspect they will also be on the losing side.