| [F]rom the consumer's perspective, the benefits of deregulation may not be intuitively obvious ... However, deregulation of the electric industry has yielded some tangible indirect benefits to consumers. |
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—Jill Feblowitz Research Director, Utilities Practice AMR Research |
Deregulation? Yes, But Watch That First Step.
Let's hear it for deregulation, at least its long-term effects. It's well worth the short-term disruptions and consumer confusion. That's the near-unanimous judgement of those of you responding to my recent piece on the subject.Among the benefits cited for both industrial and individual consumers were that deregulation: (1) unleashes the power of a self-correcting free market (Jeff Struck), giving customers services at prices they are willing to pay and quality levels that they are willing to pay for (at least in the airline industry, according to David McLean), (2) encourages selective increases in capacity, new approaches to managing consumption, and increased merger and acquisition activity, with attendant realization of synergies and lower costs (Jill Feblowitz), and (3) has delivered on its promise of lower prices, at least in cases such as electric service in Australia and England (Joseph Ramsey).
Several respondents pointed out, however, that the benefits of deregulation are less obvious to consumers than its failures. The latter include short-term dislocations of demand-and-supply patterns and the confusion consumers experience in dealing with deregulation's effects. The highly publicized shortcomings of questionable efforts to deregulate are not encouraging—witness the case of the California electric power industry. It's not clear whether attempting to educate consumers about what to expect will improve or kill deregulation efforts, creating a kind of catch-22 situation for supporters.
Antidotes were offered to offset the negative perceptions that have arisen from some efforts to deregulate industry. First, consultant Rebecca Lula suggested that a more balanced approach to deregulation at various levels in the channel of distribution would help. In the California power industry, for example, she questioned the deregulation of wholesale markets first.
Second, in response to consumer confusion, an anonymous respondent suggested that government could play a role in insuring that consumers have access to unbiased comparative price information. That way, everyone might learn how to get the most for themselves out of complex pricing schemes.
The general consensus is that deregulation can have widespread benefits, albeit complex ones that are sometimes slow in coming and not equitably distributed, which may help explain the implementation strategies adopted to date. What we are experiencing in California and elsewhere may be a massive "on-the-job training" exercise that will lead to better-informed efforts to implement deregulation in the future. What do you think?