Economic Change in Recent Times: Deregulation from the Business Executive's Perspective

The American economy underwent wrenching changes in the decades after 1970, events that in the longer perspective are likely in the future, as they are today, to seem a “watershed.” For the quarter century before 1970 the American economy strode supreme on the world stage, with the dollar at a fixed exchange rate and dominating the exchange of value across national boundaries, American companies developing or enhancing multinational strategies to reach out powerfully into other economies, and American prosperity the envy of the world. At home, in spite of ups and downs in the business cycle that worked hardship on individuals and their families during recessions, the general trends were upward: higher and higher standards of living, an expanding middle class, high wages for factory workers, confidence in the future, and security in the present. Politically, American businesses in communications, finance, and transportation functioned profitably in the security of government regulation. Then, after 1970, it all began to unravel. The changes included more serious recessions, the growth of foreign competition, deindustrialization in some communities and regions, the shrinking of opportunity for citizens with poor skills, the insecurity of accelerating inflation during the 1970s, energy shocks in 1973 and 1979, the shrinking of the middle class with growing inequality in the distribution of wealth and income, and, for some Americans, the growth of feelings of social malaise and pessimism about the future. Other peoples reached and surpassed the American standard of living.

In terms of public policy the period also witnessed wrenching changes associated with “deregulation.” There was a relationship between the larger set of forces imposing change and the transformation of government regulation aimed at particular industries, so-called “industry-specific” regulation. Industry-specific regulation never affected the largest sector of the economy, manufacturing, very much, but it was important elsewhere. As Richard H. K. Vietor, the Senator John Heinz Professor of Environmental Management at the Harvard Graduate School of Business Administration (and one of that famous school’s distinguished historians) explains, in transportation, communications, and finance the political economy shifted from a system of regulation devised during the New Deal in response to the Great Depression to either deregulation or “regulated competition.” Other scholars in administrative law, political science, and economics have explored the sweeping changes in the political economy that occurred simultaneously with, and sometimes in response to, the wrenching changes in the American economy after 1970. The only book by historians on the subject, however, focused on AT&T, and Vietor’s work brings even that account forward in time. ¹ What sets Vietor’s work apart is his focus on the individual business firm and its role in policy change and, especially, its responses to policy changes. Thus his research and his analysis are significant contributions to our understanding of the recent past. Moreover, this is the first book-length treatment by a historian of deregulation.

Vietor presents case studies of four firms: American Airlines, El Paso Natural Gas, AT&T, and BankAmerica. Executives in those firms granted interviews that greatly enriched the available documents. Each firm was established prior to the New Deal, prospered under regulation, and had so far survived the traumas of deregulation. In Vietor’s view, the history of each firm selected highlighted the problems caused by regulation. Collectively, their histories “illustrate how regulation in the United States works as a political economic system” (p. 21). The stories allow Vietor to test and expand upon theories of regulation. The basic thesis that emerges is that regulation changes the structure of the market in which the regulated firm operates. A basic assumption, not always made crystal clear by Vietor, is that regulation in shaping the structure of the market results in undesirable inefficiencies.

The four stories presented are too complex to summarize very completely even in a review essay. Nor will readers of the book unfamiliar with the terminology of business writing find them easy to digest. The most difficult...