Examining Regulation and Deregulation in the Light of Public Interest

This essay critically examines the concepts of regulation and deregulation through the lens of public interest theory, addressing the argument that regulations, while intended for public welfare, often fail to deliver desired outcomes. It discusses the definitions of regulation and deregulation, highlighting the shift from strict regulation to deregulation driven by economic rationalism and the perceived inefficiencies of governmental control. The essay explores the public interest perspective, which posits that regulation should improve social welfare, and analyzes the reasons for regulatory failures, including political influences and the inherent contestability of information. It also considers the debate between regulation and deregulation, emphasizing the importance of designing effective regulatory regimes that genuinely serve the public interest. The essay suggests that understanding the failures of past regulations is crucial for developing better policies or considering deregulation where appropriate, and it points out the availability of such resources on platforms like Desklib.

Running head: REGULATION AND DEREGULATION
REGULATION AND DEREGULATION
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Introduction
The theories of public interest illustrate the basic idea that development or formation of
the regulations is done for fulfilling the objectives or motives related to public interest. The
proponents related to the regulations are thus observed as the benevolent agents for the public
interest. Often the perspectives related to the public interest deliver the basis that the regulatory
practices or the regulation that has been implemented are a big failure for the delivery of the
outcomes of the public interest. There have been a number of issues including political, practical
and theoretical besetting the view of the public interest regarding the procedure of the regulation.
Regulation or the regulatory practices in the current era generally takes place clashing the
picture of the public interest. The theories related to the public interest generally fails to take into
account those clashes and thus lack both the suitable understanding of the political factors and
the appreciation regarding the inherent contested nature of the information. One of the further
issues in this regard tends to stem from the doubts concerning the expertise, the disinterestedness
and the efficiency that the approach of the public interest attributes towards the regulators.
Doubts also get raised regarding the competence of the regulators which do not tend to highly
sufficient for yielding the interest of the public. It is still a big debate regarding the argument that
the regulatory policies and the institutions became subject to the influence of the powerful parties
of the regulation, the politicians or the sectors of the customers and serves the interest of these
concerned parties rather than that of the interest and the concern of the wider public. The failure
of the practice of the regulation or the inappropriate implementation of the regulatory practices
thus often projects as an indication towards the learning of the appropriate lessons from the
failures that somewhat better regimes of the regulation can be designed furthermore. According
to the researchers, it is useful towards the maintenance of a normative approach that is

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considerate to the reasonable goals for the human regardless of the historical origins. The thesis
statement of the essay argues with the fact that though developed on the motive or the objective
for the welfare of the public interest, the current scenario of the perspectives of the public
interest illustrates the scenario of the failure of the regulations towards its delivery of the
outcomes of the public interest. The essay states the importance of the development of the
regulations and the purpose on which they are made in the market of the economy. It furthermore
highlights the relevant causes of the failure of the regulatory practices thereby including the
recommended measures and initiatives that need to take for the improvement of the current
scenario.
Explaining the quote
“With regards to results, the public interest perspective is prone to attack on the basis that
regulation often seems to fail to deliver public interest outcomes. Some observers see this as an
indication that appropriate lessons must be learned from failures so that better regulatory
regimes can be designed. The message for others is that that regulation is doomed to failure and
that policies of deregulation should be looked to”.
In the above quote, Baldwin and Cave talk about the importance of designing regulatory
regimes that could properly address the interests of the public. They argue that owing to the
frequent failures of the regulation to deliver outcomes that fulfill public interests, the public
interest perspective has become vulnerable to attacks. The authors state that to some observers,
the failure of regulations to serve public interest is a sign that governments must change these
regulations by learning from these failures and design a better one that take public interest
perspective into account. To the public however, the message that these failures give is that

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regulation is bound to fail and hence, it is time for the regime to consider the deregulation
policies.
Discussion
In order to discuss critically the statement made by Baldwin and Cave, it is important to
comprehend regulation, deregulation, public interest perspective and reasons for failure of
regulation. Olivier Blanchard and Francesco Giavazzi observe that many scholars and experts
have defined regulation in different ways although it is most often considered a governmental
activity1. Robert Baldwin however considers Selznick’s definition of regulation as central to the
actual theme of regulation2. According to Selznick, regulation is the “sustained and focused
control exercised by a public agency over activities that are valued by a community”. This
definition has been majorly cited in many of the modern works on regulation. Baldwin and Cave
nonetheless provide various definitions of regulation based on different understanding.
Regulation is considered a “specific set of commands” where it involves proliferation of
an obligatory set of rules that a specific body devoted to broadcasting these rules applies. Health
and Safety Executive applying the health and safety regulations at work serves as a good
example of this.
Regulation is regarded as “deliberate state influence” having broader sense of meaning
and covering all actions of the state designed to influence social or business behavior. This
definition indicates clearly that it involves command-based regimes and even those that have
some modes of influence. Examples would be those who command economic incentives such as
1 Baldwin, Robert, Martin Cave, and Martin Lodge. Understanding regulation: theory, strategy, and practice.
(Oxford University Press on Demand 2012)
2 Baldwin, Robert. "Is better regulation smarter regulation?." Public law Autumn (2005): 485-511.

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taxes and subsidies, contractual powers, franchises, consumption of resources supply of
information and so on.
“All forms of social or economic influence” also refer to regulation where all methods
affecting behavior or actions – whether these be state-based or from other sources like markets
are considered regulatory. One of the immense offerings of the ‘smart regulation’ theory has
been pinpoint the fact that regulation could be carried out not simply by state institutions but by a
multitude of other bodies as well. These include corporations, trade or professional bodies, self-
regulators and voluntary organizations. Julia Black however finds regulation is increasingly
being viewed “as ‘decentered’ from the state, and even from the well recognized forums of self-
regulation”3. Nonetheless, this explanation of regulation states that the regulatory outcomes of
any mechanism are not designed or deliberate rather simply “incidental to other objectives”.
Robert Baldwin, Martin Cave, and Martin Lodge further shed light on the need and
inception of regulation and its consequent popularity in the later decades. The author states that
regulation has witnessed substantial maturation over the past few decades. Regulation practices
received popularity during the 1970s and extended into a field of research and practice during the
1980s and 1990s. The expanding popularity then resulted in the establishment of regulatory
bodies across the globe. Regulation came to be introduced in almost all spheres of life including
education, economy, social and cultural. Sabina Avdagic sheds light on the narrower and broader
meaning of regulation4. The narrower meaning is where people consider as a restrictive activity
that controls behaviors and checks the happening of certain objectionable activities. In the
broader sense, regulation could mean as facilitative or enabling. For instance, regulating the
3 Black, Julia. "Critical reflections on regulation." Crime and Regulation. (Routledge, 2017) 40.
4 Avdagic, Sabina. "Does deregulation work? Reassessing the unemployment effects of employment protection."
British Journal of Industrial Relations 53.1 (2015), 26.

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airwaves in order to permit dissemination of operations to be performed in a prearranged manner
rather than leaving it to the probable “chaos of an uncontrolled market”. Sharon Gilad on the
other hand, discusses the importance of open-ended regulatory terms and the role regulators of
various firms play in constructing these regulations5.
With the growing interest in regulation, it also became apparent that in some cases, the
regulations were very strict and burdening the system as well. This gave rise to the need for
deregulation, which referred to the reducing or removing state regulations process especially in
the field of economy. Baldwin and Cave note that regulation and deregulation soon became the
hot topics of political agenda. In the United States, observe the authors, especially in the era of
Ronald Reagan, deregulation “was driven not by interest-group pressures but by an intellectually
guided process of economic rationalism. This economic rationalism had managed to profit
diffused consumer groups “at the expense of concentrated producer interests”. Randall S.
Kroszner, and Philip E. Strahan while highlighting the effect of deregulation on banking system,
claims that deregulation has resulted in smoother transaction of business across borders.
“Deregulation of restrictions on geographical expansion and product lines also led to a more
consolidated but generally less locally concentrated banking system”, argued the authors6. It
needs mentioning that during the 1970s era, the US witnessed numerous banking regulations that
included restrictions on interest rates both from the lending as well as deposit end. In addition to
that, banks had limitations on geographical basis as they were prohibited from having branches
in more than one state.
5 Gilad, Sharon. "Beyond endogeneity: How firms and regulators co‐construct the meaning of regulation." Law &
Policy 36.2 (2014), 139
6 Kroszner, Randall S., and Philip E. Strahan. "Regulation and deregulation of the US banking industry: causes,
consequences, and implications for the future." Economic Regulation and Its Reform: What Have We Learned?.
(University of Chicago Press, 2014) 490

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David Parker defines deregulation as the revoking of governmental regulation especially
in the sphere of economy7. They find that deregulation rose to prominence around the same time
when regulation was in high demand. It was sought by the public because of the inefficiencies of
regulation imposed by the government. In addition, the public also feared that regulations would
be used against the regulatory industries by the regulated ones to their own benefits thus hurting
the consumers and the economy. As Christel Koop, and Martin Lodge note, regulations are
inconsistent and this causes great chaos especially for those involved in international business
because changes in regulation increases operational risks of the organizations8. Deregulation
hence, becomes essential to help industries and organizations enter into markets without barriers,
which in turn aids in improving innovation and lowers the prices as well. When deregulation is
encouraged, producers will have minimum control on competitors and this could then encourage
market entry. In contrast to this, Reinhard Steurer finds in a study concerning the unemployment
of youth in Central and Eastern Europe that deregulation does not make much difference.
According to the author, deregulating the employment protection legislation (EPL) alone might
turn out to be futile9.
Whether supporting regulation or deregulation, it is important to take into account the
public interest perspective. Public interest theory is a section of welfare economics, according to
which regulation must improve social welfare. Apart from that, the theory also states that
regulation results from the cost-benefit analysis that is done to decide whether the cost to modify
the market’s operation overshadows the increase social welfare amount. Baldwin and Cave
7 Parker, David. "The Oxford Handbook Of Regulation‐edited by Robert Baldwin, Martin Cave and Martin Lodge."
Public Administration 90.2 (2012), 565
8 Koop, Christel, and Martin Lodge. "What is regulation? An interdisciplinary concept analysis." Regulation &
Governance11.1 (2017), 100
9 Steurer, Reinhard. "Disentangling governance: a synoptic view of regulation by government, business and civil
society." Policy Sciences 46.4 (2013), 390

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observe that those supporting regulations do so “in pursuit of public interest-related objectives
rather that groups, sectors, or individual self-interests”. Those supporting regulation are therefore
viewed as performing as compassionate mediators for the public interest. The purpose of
regulation is to accomplish some publicly desired outcomes in situations where, for example, the
market might or would fail to capitulate on these. Bronwen Morgan however points out the
ongoing debate between public interest and private-interest theories as the main points of focus
within the regulation research10. The debate between public interest versus private-interest has
always been a topic of controversy. The reason is that while some argue public interest to be the
reason for the origin of regulations, others argue it was private-interest. In the light of this
controversy, it is easier to understand the statement made by Baldwin and Cave.
Although regulations originated keeping in mind the public interest, it began to deviate
from its actual purpose. From the public-interest perspective, the bureaucrats work not for their
own profit but for the benefit of the people, the politicians do not desire to enhance their electoral
career but the career of the people. In addition, in the world where public interest is prioritized,
businesses and other interest groups do not look for special privileges or exemptions, and
decisions are not determined by the rules of decision-making. However, the public interest
perspective with which, regulatory bodies associated themselves was soon lost. Roberto De
Vogli stated that in order for the regulations to succeed, it was important to maintain the focus on
public interest but it did not happen. In an increasingly globalized world, the business
environment has also gone global11. Multinational companies are the result of this global
business scenario. In such a situation, the companies are compelled to go through all the
10 Morgan, Bronwen. Social citizenship in the shadow of competition: the bureaucratic politics of regulatory
justification. (Routledge, 2017)
11 De Vogli, Roberto. "The financial crisis, health and health inequities in Europe: the need for regulations,
redistribution and social protection." International journal for equity in health13.1 (2014), 58.

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regulations that are imposed on them by a foreign government while entering that country for
business. With the rise in corporate community, there is also a rise in the need for acknowledging
the public interest. As Randy Becker, and Vernon Henderson note, social responsibilities have
become the main point of contention for the MNCs and their executives to win the competitive
race12. Social responsibilities are in public interest and the regulations help strengthen these
interests, state the authors. Pamela Samuelson however, argues that too much government
regulation results in the opposite of what public interest perspective aims to achieve13. In a report
published in Forbes, it was revealed that more than 45% Americans found government
regulations to be too much. This was the twelfth year in a row when the American citizens
expressed discomfort with government regulations. The report is an indication that public
interest as the actual cause of origin for regulations, as claimed by its proponents, has been
neglected hugely. In contrast to this, Dr. Emily Ekins of CATO, conducted another survey in a
more extensive manner and found that 69% of people agreed to government regulation being
necessary14. The need for government regulation was realized more deeply in the US after the
2008 financial crash.
Steven P Croley supports regulations by stating that it has helped in maintaining the
security, safety and privacy of the public by restricting malicious elements from having easy
access15. The author states that the government’s purpose is to give a legal framework that
permits the individuals to conduct through markets. In circumstances where markets fail, public
12 Becker, Randy, and Vernon Henderson. "Effects of air quality regulations on polluting industries." Journal of
political Economy 108.2 (2000), 389
13 Samuelson, Pamela. "Intellectual property and the digital economy: Why the anti-circumvention regulations need
to be revised." Berkeley Tech. LJ 14 (1999), 519.
14 Forbes.com, 'Where Is The Public On Government Regulation?' (Forbes.com, 2019)
<https://www.forbes.com/sites/bowmanmarsico/2017/10/23/where-is-the-public-on-government-regulation/
#3e17ecb765b9> accessed 11 January 2019.
15 Croley, Steven P. Regulation and public interests: The possibility of good regulatory government, (Princeton
University Press, 2009)

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deed, in theory, could develop “welfare through the provision of public goods and taxation or
regulation of externalities”. Christopher Coyne provides the example of Uber, an app to book
cabs and that connects private drivers with the riders, and the backlash it had to face in London
from regulators along with the taxi drivers16. The case is an excellent example of public interest
regulation. The backlash resulted in the introduction of new regulations, which made it
mandatory for Uber drivers to reach within five-minutes of booking to the rider. Other regulatory
proposals included avoiding the apps from displaying the cars that are available to the users and
prohibiting ride sharing. This example brings forth clearly, the public interest view on
regulations.
As per the public interest view, government regulators implement rules and laws that
work towards the betterment of the consumers by focusing on their welfare. This view expects
that the government regulations would safeguard the consumers from any sort of injury coming
from greedy and fraudulent producers. Garrett Emmerson, Transport for London’s (TfL) chief
operating officer provided a succinct explanation of the need for regulations. According to
Emmerson, “in recent years the private hire industry has grown exponentially and technology has
also developed rapidly, hence the need for consultation regarding new potential regulations”17.
This explanation by Emmerson hints to an inclination towards proposing regulations that could
fulfill the private interests rather than public. Paul J Quirk points out those regulations that are
implemented in public interest would never cause trouble for the public. In Uber’s case, the
regulations clearly favored the private citizens18.
16 Mercatus Center: F. A. Hayek Program, 'Does Regulation Serve The Public Interest?' (Mercatus Center: F. A.
Hayek Program, 2019) <https://ppe.mercatus.org/expert_commentary/does-regulation-serve-public-interest>
accessed 12 January 2019.
17 Ibid 16
18 Quirk, Paul J. Industry influence in federal regulatory agencies. Vol. 84. Princeton University Press, 2014.

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While describing public interest theories defining regulations, Steven K Vogel argues that
public interest refers to the “best possible allocation of scare resources for individual and
collective goods” and in economies especially western, “the allocation of scarce resources is
coordinated by market mechanism largely”19. The reason that the conditions for allocating the
resources are not regularly met, demand arises for improving the methods. One of the most
effective methods in accomplishing efficiency is allocating resources is regulation by the
government. The government regulation might prove effective in situations where markets fail
and private laws provide no viable solution. However, government regulation in the allocation of
resources could also fail if the cost of government intervention outweighs the benefits. People
often question the intervention of government regulations in markets stating that such
interference questions their freedom. As Virginia Haufler states, those favoring government
regulations would justify it by showing the numerous instances where markets have failed20.
These instances include natural monopolies, too much competition, informational asymmetries,
externalities, public goods, bounded rationality and trade cycles amongst others. When looking
at these failures from the market operation perspective, government regulation proves to be an
efficient tool to rectify imperfect competition, undesirable market results, unbalanced market
operation and missing markets.
Considering the vast aspect of the public interest perspective on government regulation, it
is difficult to state whether regulation is better or deregulation should be favored more. As
Baldwin and Cave have proposed in their statement, some argue for learning from failures of
regulations while others argue in favor of introducing deregulation. Baldwin and Cave provide a
19 Vogel, Steven K. Freer markets, more rules: Regulatory reform in advanced industrial countries. Cornell
University Press, 2018.
20 Haufler, Virginia. A public role for the private sector: Industry self-regulation in a global economy. Carnegie
Endowment, 2013.

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detailed explanation of the public interest theory, the main emphasis of regulation and the key
problems. According to them, the main emphasis of the regulator in public interest theory is to
act “in pursuit of public rather than private interests”. The regulator is an expert but disinterested.
The key problems of regulation in this theory include problems in agreeing to an outset of public
interest, skepticism regarding disinterestedness and public-spiritedness, understating influence of
economic power and prevalence of capture in regulation. One of the most visible problems is that
there are concerns regarding the public interest outcomes that often fail to result. Further, the
regulations fail to understand the competition for power within groups. When there is a dearth of
clear details about the substantive aims for public interest regulation, difficulties are bound to be
there in recognizing what constitutes successful involvement. This creates problems for
institutions that are responsible for pursuing or delivering public interest. In the interim, the
classification of legitimate and meaningful objectives would be impossible when there is
deficiency of evidently expressed foundations for intervention. It is not enough always, to
emphasize public interest – the assertion must always be, and anticipate to be challenged. Hence,
to “establish a coherent structure of context-specific significant principle and value is an
essential prior task to effective regulation I pursuit of public interest objectives”.
When the regulatory regime, that was responsible for maintaining and fulfilling the
public interests through imposition of various regulations, fails to deliver, questions are bound to
be raised. However, Robert D Pritchard notes that failure of the regulatory bodies does not
necessary mean it should cease to exist. The authors state that the failure presents another
opportunity for the system to cancel out those things that caused it to fail21. As Baldwin and Cave
note, reasonably, values must be firm before regimes could be designed to follow the resultant
21 Pritchard, Robert D. Federal motor carrier safety policy: reducing fatalities with increased financial responsibility.
(Northeastern University, 2010)