Policy approaches to economic deregulation and regulatory reform

Abstract

This paper is divided into three parts. Part I contains a brief discussion of traditional theories for, and the actual methods of, economic regulation. It also examines factors that have influenced global trends toward deregulation -- e.g., regulatory failure, poor performance, labor market problems and budgetary concerns. Part II examines some of the U.S. academic literature that has analyzed the political economy of economic deregulation in the United States and the factors that drove deregulation. Chief among these factors includes: the convergence of elite opinion in support of reform and the important contribution of economic analysis in the reform process; the proactive exercise of leadership by policymakers; the role of independent regulatory agencies and courts which allowed for considerable deregulation to occur without Congressional action; and the role of Congress. Drawing on the structural features identified in part II, Part III of the paper examines the political economy of economic deregulation in Japan, both historically and at the current time. This paper argues that over the postwar period Japan has experienced a considerable degree of regulatory reform and economic deregulation. This has been driven by the interplay of four factors: the pluralization of interests within Japanese society; the emergence of domestic and international market-based pressures for change; external political pressures for change; and the perceived fiscal necessity to reduce public expenditures. Each of these factors is discussed in some detail. The paper also examines the current deregulation debate in Japan and identifies groups supportive and opposed to deregulation and regulatory reform. The paper argues that domestic and international market and technological factors have converged to necessitate on-going reforms. The costs to the Japanese economy of failing to continue the process seem to be sufficiently great that further reforms are expected. However, the paper discusses the role played by Japanese regulatory agencies, courts, policy makers and interest groups and argues that the institutional mechanisms that exist elsewhere to drive reform, or tolerate it, are less than robust in the Japanese setting