The Great Transformation of Regulated Industries Law

Merrill, Thomas W.; Kearney, Joseph D.

The nation's approach to regulating its transportation, telecommunications, and energy industries has undergone a great transformation in the last quarter-century. The original paradigm of regulation, which was established with the Interstate Commerce Act's regulation of railroads beginning in 1887, was characterized by legislative creation of an administrative agency charged with general regulatory oversight of particular industries. This approach did not depend on weather the regulated industry was naturally competitive or was a natural monopoly, and it was designed to advance accepted goals of reliability and, in particular, non-discrimination. By contrast, under the new paradigm, which is manifested most clearly in the Telecommunications Act of 1996, the goals of regulation have become the promotion of competition and maximization of consumer choice. The role of agencies has been reduced to monitoring access and pricing of "bottleneck" monopolies such as the local telecommunications loop and electricity distribution systems.

Having described this transformation in six core common carrier and public utility industries -- railroads, airlines, trucks, telecommunications, electricity, and natural gas -- the Article sets out on a quest to find its causes. No consistent pattern of institutional leadership can be discerned in any of the three types of government actors with the power to compel change: the regulatory agencies, the courts, and the Congress. This suggests that the causes are rooted in deep-seated economic and social forces, such as technological changes, and chain reactions that have emerged as regulatory reform in one industry segment has spread to another segment. The Article concludes that the two most persuasive explanations are that key interest groups have discovered that regulatory change is in their interests, and that an ideological consensus has emerged among economists and other policy elites that the original paradigm entails risks of regulatory failure that exceed the risks of market failure under the new paradigm.


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November 5, 2015