Concept
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Lower costs
Regulation is expensive – shortly after the 2008 financial crisis the IMF estimated that the various regulations put in place would affect an increase in lending rates as follows: 1. Europe – 17 basis points (bps) 2. Japan – 8 basis point (bps) 3. USA – 26 basis points (bps).
This meant consumers would pay between 0.08% and 0.26% more interest for credit due to the associated regulatory costs, which are passed on to the consumer.
Market participation
Fewer rules means fewer hurdles to jump to get to market with a product or service. This feature correlates with greater market participation. Greater market participation leads to increased competition and employment. Increased competition drives down prices. Lower prices lead to savings for consumers which means greater spending in other areas of the economy, or savings increases.
Increase response rate
Market participants have greater flexibility in their responsiveness to changes in the market environment. The speed at which a company can adjust to a significant opportunity or threat is substantially different when they do not have to spend crucial time and effort getting regulatory approval.
Rate of advancement
As previously mentioned in our section on market participation, deregulated environments are prone to faster rates of advancements in:
• Technological advancement, Industrial expansion, and Product and service creation.
To look at an example of the benefits of deregulation in non-financial sectors, see the following linked example of the effect of deregulation of the US Railroad industry in the 70s and 80s. We see from the example that productivity soared, and prices dropped significantly.
In summary, the benefit of deregulation is that it allows businesses to focus on doing what they do best without added distractions, constraints and costs of regulation – reducing the need for time, money and resources.