Meaning Of Deregulation, Advantages and Disadvantages

Hello welcome to this blog on Deregulation: Meaning of deregulation. Advantages and Disadvantages of Deregulation.

Table Of Contents

At the end of this article, students should be able to know the:

1. Meaning of deregulation
2. Benefits of deregulation
3. Advantages of deregulation.
4. Disadvantages of deregulation.
5. Revision Questions.

MEANING OF DEREGULATION

Definition: Deregulation is the act or process of removing or reducing state regulations. It is the reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. In other words, deregulation refers to a decrease in state or Federal Government oversight of industries and business. It is characterized by repeal of laws that restrict trade and competition. Through this process, industries may become more efficient in deregulated economics.

Deregulation in Nigeria refers to the doing away with regulation that are concerned with financial markets and trades from 1994 – 1998. This is considered as an element of economic reform programme aimed at improving the overall economy through well spelt ways. Deregulation is therefore the opposite of regulation which refers to the process of the government regulating certain activities.

Deregulation also means removing government control from the operation, production, storage and distribution of goods and handing them over to private sector.

The government has an interest in regulating some industries, such as telephone, gas, petroleum, and electric companies, with tougher rules and requirements because they serve so many people as a matter of necessity. Deregulation remove some of the control the government has over these types of industries so that other companies can enter the market and serve customers.

Benefits or Advantages of Deregulation

Advantages of deregulation:

1. Competition: Deregulation lowers barriers to entry in a given industry, competitions increases and consumers have more choices for products and services. Individual businesses tend to decrease price, to achieve a more competitive position in the market.
2. Cost savings: Deregulated industries provide cost savings to customers. By greatly reducing or eliminating tariffs, deregulation can lower prices, company profit increase and cost savings can be passed on to customers.
3. Reduced bureaucracy: Society can benefit from a reduction of bureaucracy. Resources not spent on regulation can be channeled to other programmes.
4. Consolidation: Deregulation aids industry consolidation for instance, in 1996 law allowing out of date holding companies to buy banks allowed strong banks to acquire weaker performing Banks.
5. Generation of employment: Deregulation do bring private individuals to set up industries which can generate employment.
6. Steady supply of goods: Deregulation ensure steady supply of goods to customers as against government control of industry.
7. Reduction in corruption: Deregulation do reduce corruption as the industries are no longer in the hands of government officials.
8. Remover of cheats in the system: Deregulation helps to remove cheats from the system, e.g, smugglass are kick out of oil smuggling.

Problems or Disadvantages of Deregulation

Disadvantages of deregulation:

1. Decrease in prices: While a price decrease across the board is a positive effect of deregulation for customers, it can have a negative effects on the company that previously controlled the market or industry.
2. Degrading of quality: If an industry is deregulated, it 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.
3. Fly-By-Night: Customers left holdings the bag if new company’s 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 opinion 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 it’s consumers are left to the with the negative effects.

Revision Questions

1. What is the Meaning Of deregulation?
2. Mention five advantages of deregulation.
3. Mention two problems or disadvantages of deregulation
4. What are the reasons for deregulation?