Deregulation or Protectionism

Deregulation

In Simple words: - The removal of government controls from an industry or sector, to allow for a free and efficient marketplace.

DEFINATION

Deregulation attempts to free economic activity from binding rules from the state. As a basis of free trade amongst nations, the idea is to allow competition to ensure the most efficient practices prevail, which should average out and benefit everyone. Deregulation also creates an economic environment favorable to upstart companies that were unable to enter the industry prior to the passing of deregulation. Industries that have undergone deregulation include Communications, Banking, Securities, Transportation, as well as Power and Utility.

BENEFITS OF DEREGULATION

Cost Reduction:

· Increased competition results in more competitive pricing.

· There are no fees to the consumer when working with the power company.

· Protection from risings costs.

Reliability:

· Transmission and distribution of your electric stays with your local utility company.

· Regulated and guaranteed by the governmental body overseeing utilities in your state.

Competition:

· Deregulation lowers barriers to entry in a given industry. When more firms enter an industry, competition increases and consumers have more choices for products and services.

· Individual businesses tend to decrease prices, to achieve a more competitive position in the market.

Flexibility:

· Flexibility in developing an energy strategy that is tailored to your business.

· Flexibility to blend and extend your current contract if your business needs change.

Consolidation:

· Deregulation aids industry consolidation. For instance, a 1997 law allowing out-of-state holding companies to buy banks allowed strong banks to acquire weaker-performing banks.

Environmental Benefits:

· With more demanding customers, the company’s suppliers are forced to adhere to the highest standard of efficiency and cleanliness.

Considerations:

· Even proponents recognize certain pitfalls of deregulation.

· For example, the banking crisis that began in 2007 was in part caused by deregulation of banks in the 1990s. Laws allowing banks to sell exotic instruments, such as mortgage-backed securities, complicated the crisis when valuing those securities became excessively difficult.

DISADVANTAGES OF DEREGULATION

Price Decreases:

· While a price decrease across the board is a positive effect of deregulation for customers, it can have a negative effect on the company that previously controlled the market or industry.

· They may also have to contract their equipment out to these other companies (as is the case with some phone companies), which could be a strain on the company's resources.

· If the price decreases are not met with more efficient operations and cost-cutting, the investors and employees of the original business may suffer.

Fly-By-Nights---Customers Left "Holding the Bag":

· If new companies crop up in an established yet newly deregulated market, this could draw scammers or "fly-by-night" companies. These companies play on the novelty of being able to offer an alternative option to customers who believe that any alternative would be better than what they have now. If the new company goes out of business unexpectedly due to bad business practices or poor products, its customers are left to deal with the negative effects. Each customer may also have trouble going back to the original provider (for example, the customer may have to pay reconnection fees for a gas or electric service).

Could Degrade Quality:

· If an industry is deregulated, this will bring competitors to the market. Since with deregulation the government has less of an influence, there is no guarantee that the new competitors will offer a product with similar or comparable quality as the current offering.

PROTECTIONISM

In Simple Words: The government’s placing of duties or quotas on imports to protect of domestic industries from global competition.

DEFINATION

Protectionism is an economic policy to restrain certain trade through measures such as tariffs, quotas and regulations. It is often used to discourage imports of certain goods and to protect domestic markets in various ways. Protectionism is often regarded as a barrier to free trade. The word seems to conjure up negative images of isolationism and subsidizing industries that could otherwise not compete fairly against others. (This can help indicate why some industries would strongly support protectionism for themselves.)

Some aspects of how protectionism can be used by rich countries include:

1. Intervention in things like technology transfer, or distorting market functions

2. Providing vast subsidies to local industries (for example, textiles, agriculture, footwear even intellectual property as this report mentions) while asking others to deregulate and become subject to the market’s natural force of supply and demand

3. One-sided trade agreements.

ADVANTAGES OF PROTECTIONISM

1. Protectionism allows the green, fledging firms to function and develop at a decent rate, because these firms are not pressured by the foreign, more experienced firms. The fresh firms grow until they themselves are able to complete in international markets, promising positive aspects for the domestic economy in the future.
2. The domestic economy also strengthens because the unemployment rate will be minimal. This is because the domestic firms are able to produce and sell more goods with a lot less difficulty giving firms less incentive to decrease its cost by decreasing its workforce.
3. It keeps the domestic economy flowing.
4. It also prevents dumping. This is where foreign grand economics enter an economy and sell their goods at a price lower than the cost of production.

DISADVANTAGES OF PROTECTIONISM

1. It can cause a retaqliation reaction from other countries. Running the relationship of two nations.

2. It also prevents nations from maximizing their specialization level, usuing up factors of production moronically inefficiently.

TYPES OF PROTECTIONISM

1. Social Norms

2. Subsidizing

3. Tariffs

4. Quotas

5. Non Tariff Barriers

6. Orderly Marketing Agreements

7. Health, Safety And Labeling Requirements

8. Bureaucratic Harassment

CONCLUSION

It is difficult to conclude that which one is better whether DEREGULATION OR PROTECTIONISM because both have their own unique advantages.

But from my point of view I will go with Deregulation because Protectionism restricts imports by placing duties which becomes a big problem to free trade and it also stops the moving of money through an economy. The result of this is that it stops the development of a company as well as of the country.

REFERENCES

http://en.wikipedia.org/wiki/deregulation

www.investorwords.com/1420/deregulation.html

useconomy.about.com/od/glossary/g/deregulation.htm

Posted By:

MANISH GARG

MBA-1 B