REGULATION

The regulation of industries in the United States is based largely on a concern for the public interest. Industries, especially those with a high potential for monopoly (such as water, gas, and telephone service), will often be regulated by agencies of government for the benefit of the public, so that consumers can be assured of quality services and products at reasonable rates. The rationale for the regulation of all or part of an industry is that if a monopoly exists, and competition is inappropriate, then monopolies should be regulated to avoid possible abuses of uncontrolled monopoly power. Regulation is a public sector (government) guarantee that consumers should benefit from the built-in economies of any monopoly. Regulators seek to establish customer rates that cover production costs and yield a "fair" or "reasonable" return to the enterprise.

There are problems associated with the regulation of business by the public sector. First, a regulated firm may resort to accounting manipulation to overstate its costs to obtain higher unjustified profits. Second, some regulatory commissions of the government function inadequately, sometimes even making "deals" with the industries they are regulating. Third, it is often uncertain which industries should be regulated. The trucking and airline industries both claim that if they were less regulated, they would be more competitive. In addition to the regulation of near monopoly industries and natural monopolies (like water and electricity), since the early 1960s, the public sector also regulates the conditions under which goods and services are produced, as well as the impact of production on society, and the physical quality of goods. This kind of social regulation is applied across the board to virtually all industries. Examples of social regulation includes the efforts of the Occupational Safety and Health Administration (OSHA), which regulates industries to protect workers against occupational injuries and illnesses, and the efforts of the Consumer Products Safety Commission (CPSC) which regulates minimum standards for potentially unsafe products. Though regulation itself can be controversial, few question whether it should exist. The primary question that any public sector regulation imposes is how and when it should be used.

See also: Monopolies, Monopoly