Financial deregulation is known to have benefits which occur at a microeconomic level. Financial regulations are put into place, however, because they tend to have benefits on a macroeconomic level. The trick is to find the right combination of regulations and to deregulate eras that are potentially harmful so that both economies can experience a maximum level of benefit. The end goal is pretty simple: to give everyone the opportunity to ascend the ladder of socioeconomic success if that is what they wish to do.
What are the pros and cons of financial deregulation? Here are some of the key points to consider on the subject.
The Pros of Financial Deregulation
1. It leaves businesses alone to fend for themselves.
Under an atmosphere of financial deregulation, businesses are allowed to determine their own operational processes. This gives them the authority to create their own strategic imperatives with a minimal level of governmental interference. The end result is a business that can expand into new territories, acquire new properties, and access new markets without regulatory red tape.
2. It gives customers more choices.
Deregulation makes it possible for any entrepreneur to create any business in virtually any industry. All they need to have is the financial backing to make it happen. There aren’t any license quotas that can stand in their way or government obligations which have to be met first. Because there are more choices, prices can be naturally regulated so customers are forced to spend what companies may want them to spend.
3. It emphasizes the need for world class service.
Because there are multiple consumer choices in an economy with financial deregulation, companies are forced to provide world-class services in every facet of the business. Consumers will pick and choose based on the overall value proposition, so a company with poor customer service will generally lose to a company with good customer service when all other aspects are similar.
4. It creates more efficiencies within the deregulated industry.
When it is functioning properly, deregulation helps consumers and businesses win because each sector becomes more efficient. Market forces are allowed to play out naturally to build and maintain relationships. Businesses can focus on their core strategies instead of focusing on making sure they have fulfilled all of their obligations under the regulations which are in force.
The Cons of Financial Deregulation
1. It eventually creates a system of financial winners and losers.
Not everyone can be enormously successful in an economy fueled by financial deregulation. Eventually someone comes out on top and begins to monopolize their industry. Over time this creates higher costs for consumers, less efficiencies, and ultimately less satisfaction because where there was once a lot of choice, now there are very few choices.
2. It gives businesses power over the consumers.
With or without regulations, businesses can essentially create products that consumers are forced to purchase. There will always be the power to not purchase goods or services in the hands of the consumer, but consider the actions of the Affordable Care Act. Consumers can choose to not carry health insurance in the US, but they will be taxed for that choice.
3. Profits become the #1 point of emphasis at some point.
Financial regulations are put into place to support those who are at the lowest rungs of the socioeconomic ladder. In an economy which features financial deregulation, profits become king. Businesses create goods and services that target their most lucrative consumer bases and price things out of range for those on the lowest rungs. In effect, the poor are ignored and the rich are doted upon.
4. There is no emphasis on personal responsibility.
Financial regulations also dictate how individuals and businesses are allowed to invest their cash. Without rules in place, the market allows virtually anything to happen. This means the rich will get richer and the poor just get poorer because all of the opportunities are crafted by those who have power. In the world of financial deregulation, power only comes from the amount of money one has.
The pros and cons of financial deregulation show that there must be some compromise in the microeconomic and macroeconomic economies for mutual success to be found. Responsibility must be encouraged, competition must be encouraged, and the poor cannot be ignored for a society to flourish. Neither a completely regulated or completely unregulated economy can provide that on its own.