DEREGULATION or PROTECTIONISM

QUESTION NO. 13

DEREGULATION:

Deregulation is when the government seeks to allow more competition in an industry that allows near-monopolies. The act of removing controls from some sector of the economy. In nearly all cases, deregulation of a given industry has both positive and negative implications for investors. Typically, firms in a strong financial position benefit from deregulation, while firms in a weak financial position suffer.

The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. For example, the telecommunications and airlines industries were more successfully deregulated. This allowed more competition, and eventually lower prices for these services. However, many companies that could no longer compete went out of business, which had a negative effect on the economy.

PROTECTIONISM:

Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition. Typical methods of protectionism are import tariffs, quotas, subsidies or tax cuts to local businesses and direct state intervention.

Investopedia explains Protectionism:

Any time a government undertakes any of these actions, they are engaging in protectionism. There is significant debate surrounding the merits of protectionism. Critics argue that, over the long term, protectionism often ends up hurting the people it is intended to protect and often promotes free trade as a superior alternative to protectionism.

DISCUSSION ABOUT DEREGULATION AND PROTECTIONISM

For the neo-liberal, individuals make rational economic and social choices only through the market. For the statist, the state is the sole custodian of society’s interests, and its decisions their only reliable expression, with or without free elections. While the one ideology seeks to subordinate state to market, and the other the market to the state, what both succeed in doing is subordinating society’s will and the means of its expression. The alternative is that both state and market should be the servants of society rather than society being the servant of either. Whether the next century will be marked by unity and harmony rather than division and conflict depends in no small part on what democracy and citizenship are to mean in the age of globalization.

Brendan Martin, In the Public Interest? Privatization and Public Sector Reform, Zed Books (London), 1993. (Quote used on a Bretton Woods Project

Benefits of Deregulation:

· Competition

· Cost Savings

· Considerations

· Reduced Bureaucracy

Disadvantages of Deregulation:

· Price Decreases

· Degrade Quality

Strength of Protectionism:

· One strength of protectionism is that it keeps the domestic economy flowing. Since there is a decrease in imports, domestic firms have less competition, and so are able to continue.

· 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

Conclusion of Deregulation:

It may simultaneously both accelerate the rate of plant closures and increase the interest in life extension of those people that are above the threshold of profitability for continued operation.

Consolidation of numerous nuclear power station within a single operating company may permit reductions in the use of outside contractors by making it feasible to rotate in-house specialists among the various plants.

http://books.google.co.in/books

Conclusion of Protectionism:

Fritz Machlup said in class at NYU back in 1981 that arguments for protectionism, when followed through to their logical conclusion, always ‘prove’ that a person’s right hand should not trade with that person’s left hand.”

When any protectionist argues, based on reason X, for restrictions on trade drawn along national political borders, it’s always enlightening to apply the same argument Xto trade restrictions drawn more locally – even as locally as the individual.