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Liberalizing the Regulation of Regulated Industries

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Practice Advice in Regulatory Policy and Management

Liberalizing the Regulation of Regulated Industries (OECD)

Description: Liberalization in competitive industries is beneficial, yet its success is hindered by the presence of unnecessary requirements and anti-competition regulations. Governments need to revisit the extent and quality of regulations and their effects on market economy.

Commentary: Since 1980s, privatizations in OECD countries have improved the efficiency and performance of formerly public companies. Regulatory reforms in these countries ocurred in three dimensions, namely: liberalisation, state retrenchment and new regulatory design. While the pace and the extent of liberalization differed across countries, similar trends were observed in industries with high barriers to entry and limited competition, such as air and rail travel, telecommunications, electricity and heavy industry. Furthermore, analogous institutional barriers to competition and antitrust regulations were observed in all member countries.  The essential practices for regulatory reform aimed at liberalizing the institutional and market conditions for privatization are:

  • allowing competition and free market mechanisms to determine the sectors in which privatization needs to occur, while at the same time restraining creation of monopolist networks and infrastructures through antitrust regulations.
  • long term cooperation between service and infrastructure providers should not be discouraged, yet governments need to maintain oversight of such activities to prevent cross-subsidization of services.
  • governments must introduce pricing regulations and ensure that tariffs reflect the actual operational costs of the industry.
  • in environments where competition has negatively impacted the pricing of goods and services in the social and universal service areas, governments need to use public funds to provide direct transfers/subsidies to families in need.

In addition to these regulatory measures, the OECD suggests that governments maintain independence of decision-makers and impose legal constraints on the regulator’s discretionary procedures. Governments also need to maintain investor confidence by ensuring that subsequent policy decisions do not jeopardize previously defined policy frameworks.

Source: OECD (2001). "The Implementation and the Effects of Regulatory Reform: Past Experiences and Current Issues" at: http://www.oecd-ilibrary.org/economics/the-implementation-and-the-effects-of-regulatory-reform_eco_studies-v2001-art3-en (accessed 28 October 2012).

Page Created By: Khilola B. Zakhidova on 1 December 2012. Updated by Ian Clark on 2 January 2013. The content presented on this page is drawn directly from the source(s) named above, and consists of direct quotations or close paraphrases of material drawn from it. This material does not necessarily reflect the opinions of the creator of this page or the researchers associated with this project. Further, the opinions expressed in the source and presented on this page do not necessarily reflect the official institutional positions of the organization responsible for the source’s publication.

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