Was the so-called "Reagan Revolution" a disappointment regarding the federal systems of special-interest regulation? Many of that administration's friends as well as its opponents think so. But under what criteria? To what extent? And why? When Ronald Reagan was elected in 1980, the popular belief was that the size of government would be cut and that some of the regulatory excesses of the prior decade would be rolled back. However, the growth of the federal government continued throughout the Reagan presidency and no agencies were phased out.
What were the apparently powerful forces that rendered most of the bureaucracy impervious to reform? In this book, professional economists and lawyers who were at, or near, the top of the decision-making process in various federal agencies during the Reagan years discuss attempts to reign in the bureaucracy. Their candid comments and personal insights shed new light on the susceptibility of the American government to bureaucratic interests. This book is required reading for anyone wishing to understand the true reasons why meaningful, effective governmental reform at the federal level is so difficult, regardless of which political party controls the White House or Congress.

"The 1996 Telecommunications Act was an attempt to increase competition among telecommunications providers in the United States by reducing regulatory barriers to market entry. This competition was expected to drive innovation in the telecommunications sector and reap economic benefits for both American consumers and telecommunications providers. The legislation, however, had a markedly different impact. While many of the more aggressive providers enjoyed sharp short-term rises in stock market values, they soon faced sudden collapse, leaving consumers with little or no long-term benefit. In Competition and Chaos, Robert W. Crandall analyzes the impact of the 1996 act on economic welfare in the United States and how the act and its antecedents affected the major telecommunications providers. He argues that the act was far too stringent, inviting the Federal Communications Commission and state regulators to micromanage competitive entry into local telecommunications markets. Combined with the bursting of the dot.com and telecom stock market bubbles, this aggressive policy invited new and existing firms to invest billions of dollars unwisely, leading to the 2001-02 collapse of equity values throughout the sector. New entrants into the market invested more than $50 billion in unproductive assets that were quickly wiped out through massive failures. The 1996 act allowed the independent long-distance companies, such as MCI and AT&T, to live a few years longer. But today they are a threatened species, caught in a downward spiral of declining prices and substantial losses. The industry is preparing for an intense battle for market share among three sets of carriers: the wireless companies, the local telephone carriers, and the cable television businesses. Each has its own particular advantage in one of the three major segments of the market-voice, data, and video-but none is assured a clear path to dominance. Although the telecom stock market collapse is now history and the survivors are investing once again, Crandall concludes that the regulators have failed to adapt to the chaos to which they contributed. "

The 1990s witnessed a major revolution in telecommunications policy in North America and Europe. The electronics revolution swept the world, and most countries began to realize that they could not compete in many markets without a vibrant, competitive telecommunications sector. As a result, the European Union, Canada, and the United States launched major new liberalization policies aimed at opening all telecommunications markets to competition. This report presents two views of the progress towards competition -- one for North America and one for Europe. The authors provide an overview of the market structure on both continents prior to the 1990s, discuss significant regulatory changes during that decade, and analyze changes in rate structures and competition that have occurred since liberalization. They conclude with a look at the present and future impact of the Internet and other new technologies on the telecommunications industry. Martin Cave is professor of economics and vice chancellor at Brunel University, United Kingdom. Robert W. Crandall is a senior fellow in the Economic Studies program at the Brookings Institution.

"In 1984, Congress simultaneously eliminated state-local regulation of cable television rates and banned telephone companies from offering cable service in their own franchise areas. Five years later, the General Accounting Office discovered that basic cable rates had risen more than four times as rapidly as the overall consumer price level since rate deregulation. As a result, Congress began to move to reimpose cable rate regulation once again, finally succeeding (over President Bush's veto) in 1992. In this book, Robert Crandall and Harold Furchtgott-Roth examine the case of reregulating cable television and find that viewers gained far more than they lost during the brief deregulatory era because cable services expanded so rapidly in the deregulated environment. Moreover, they show that new technologies, such as direct-broadcast satellites, are likely to provide considerable market discipline for cable operators in the next few years, weakening any case for rate regulation. Given regulation's history of impeding innovation, they conclude that economic welfare is more likely to be enhanced by policies aimed at encouraging new entry into video services than by rate regulation. "

The rapid pace of technological change is placing the world's telephone companies in a very difficult position. Fiber optics cables, wireless telephones, digital signal compression, and sophisticated new switching equipment are lowering the cost of providing service and opening the gates to new competition. At the same time, these new technologies are providing the telephone companies with a wide array of new market opportunities. Unfortunately, their status as regulated carriers makes it difficult to exploit these new opportunities and to fend off competitive assaults on their traditional telephone business. As long as they are regulated, they can be accused of using their monopoly services to cross-subsidize new competitive ventures. But partial deregulation and open entry would be a catastrophe for them unless they were allowed to revise their rate structure. There is a widespread misconception that the U.S. telecommunications industry has been " deregulated" and that Canadian authorities are following the U.S. lead. In fact, most services remain regulated, even though some markets, such as long-distance services, equipment sales and rentals, and local services, have been opened up. This book reviews the recent changes in the structure of U.S. and Canadian telecommunications industries and the changes in regulatory policy on both sides of the border. The authors analyze the effects of these changes in regulation on telephone rates in both the local and long-distance markets with particular emphasis on the impacts of regulatory reforms and competition on long-distance rates. They use their results to suggest how regulation should be structured to allow competition to replacemonopoly on the road to the information superhighway. The authors contend that for decades misguided regulation of the telephone sector in both Canada and the U.S. denied consumers the benefits of competition, distorted local and long-distance telephone rates, and blocked entry of new carriers and new technologies. They warn that the continued regulation of the telecommunications industry could be responsible for slowing the transition from " plain old telephone service" to a telecommunications marketplace that offers a wide variety of services. They conclude by outlining the choices open to policymakers and calling for liberalized competition all along the information superhighway.

"In the United States, proposals for gasoline tax hikes have consistently met with broad-based congressional opposition. Although such taxes are a common and effective method of conserving energy in other industrialized nations, U.S. policy has traditionally relied on regulatory programs rather than fuel taxes to promote energy efficiency in automotive transportation. This book examines both the political causes and the economic effects of this idiosyncratic policy preference. Moderating the consumption and importation of oil has been an explicit goal of the United States over the past twenty years. Pietro S. Nivola and Robert W. Crandall argue that a higher levy on gasoline would be a more efficient way of achieving this goal than current automotive fuel economy standards. In fact, they find that an additional excise of less than twenty-five cents per gallon over the past dozen years would have conserved more oil than has the existing policy of administering gas mileage requirements for new passenger vehicles. And such a tax, they maintain, would not be as detrimental to the economy as opponents fear, nor as regressive as they claim. Why, then, is there such a strong national resistance to a fuel tax in the United States? And why is there less resistance in other countries? The authors examine the development of motor-fuel excises in Great Britain, France, Germany, Japan, and Canada, and explain the historical and political factors that have led to different national policy orientations. Turning their attention back to the United States, Nivola and Crandall show how regulatory measures have fallen short of their goal and why political barriers to bolder taxation of gasoline remain formidable. They conclude by offering suggestions for new directions in U.S. energy policy at the federal, state, and local level. "

"The U.S. telecommunications industry has undergone dramatic changes in recent years that have touched almost every American home and business. The average American can dial almost anywhere in the world directly, store and forward a message, or transmit a fax in less than a minute; often for less than the real cost of a 500-mile telephone call tweny-five years ago. The combination of telecommunications breakthroughs, competition among new and old carriers, and the AT&T breakup has transformed the telephone industry and provided customers with a new array of equipment and services. Robert W. Crandall examines the effects of the AT&T breakup and weighs the costs and benefits to the residential and business consumer. On balance, he finds that the efficiency gains from opening up the telephone industry have more than offset the possible efficiency losses, which may be caused by the sacrifice of economies of scale and scope or the absence of fully compatible equipment and services. The replacement of regulation with competition has led to greater productivity in the telephone industry, a more efficient rate structure, and lower equipment prices. Crandall traces the telecommunications evolution from its early beginnings as pairs of copper wires up through the historic 1982 decision to divest. He investigates the impact of technological changes, competition, and the advent of divestiture on the quality of service, local and interexchange service rates, productive efficiency, and income distribution. He also focuses on problems that linger after the breakup in the increasingly competitive but highly regulated sector. "

Not many Americans think of the legal profession as a monopoly, but it is. Abraham Lincoln, who practiced law for nearly twenty-five years, would likely not have been allowed to practice today. Without a law degree from an American Bar Association?sanctioned institution, a would-be lawyer is allowed to practice law in only a few states. ABA regulations also prevent even licensed lawyers who work for firms that are not owned and managed by lawyers from providing legal services. At the same time, a slate of government policies has increased the demand for lawyers' services. Basic economics suggests that those entry barriers and restrictions combined with government-induced demand for lawyers will continue to drive the price of legal services even higher.

Clifford Winston, Robert Crandall, and Vikram Maheshri argue that these increased costs cannot be economically justified. They create significant social costs, hamper innovation, misallocate the nation's labor resources, and create socially perverse incentives. In the end, attorneys support inefficient policies that preserve and enhance their own wealth, to the detriment of the general population.

To fix this situation, the authors propose a novel solution: deregulation of the legal profession. Lowering the barriers to entry will force lawyers to compete more intensely with each other and to face competition from nonlawyers and firms that are not owned and managed by lawyers. The book provides a much-needed analysis of why legal costs are so high and how they can be reduced without sacrificing the quality of legal services.

In virtually every country, the price of residential access to the telephone network is kept low and cross-subsidized by business services, long distance calling, and various other telephone services. This pricing practice is widely defended as necessary to promote "universal service," but Crandall and Waverman show that it has little effect on telephone subscriptions while it has major harmful effects on the value of all telephone service. The higher prices for long distance calls reduce calling, shift the burden of paying for the network to those whose social networks are widely dispersed. Therefore, many poor and rural households--the intended beneficiaries of the pricing strategy--are forced to pay far more for telephone service than they would if prices reflected the cost of service. Despite these burdens, Congress has extended the subsidies to advanced services for schools, libraries, and rural health facilities. Crandall and Waverman show that other regulated utilities are not burdened with similarly inefficient cross-subsidy schemes, yet universality of water, natural gas, and electricity service is achieved. As local telephone service competition develops in the wake of the 1996 Telecommunications Act, the universal-service subsidy system will have to change. Subsidies will have to be paid from taxes on telecom services and paid directly to carriers or subscribers. Crandall and Waverman show that an intrastate tax designed to pay for each state's subsidized subscriptions is far less costly to the economy than an interstate tax. Robert W. Crandall is a senior fellow in Economic Studies at the Brookings Institution. Leonard Waverman is a visiting professor at the London Business School, on leave from the University of Toronto. They are coauthors of Talk Is Cheap: The Promise of Regulatory Reform in North American Telecommunications (Brookings, 1995).

Since 1971 competition has begun to replace regulation as a governing force in the telecommunications industry. The breakup of the national telephone monopolies, technological advances, and the worldwide network in telecommunications have brought a revolution in the telecommunications equipment and services industries. These changes have forced legislators and regulators to rethink public policy toward communications. The papers in this book were first presented at a conference organized by Robert Crandall and Kenneth Flamm, pulling together a group of industry professionals and scholars to address the far-reaching implications of the upheaval in the communications industry. The contributors analyze the effects of this increasing competition on standardization, technical innovation, and international rivalry. Changing the Rules offers possible policy options and analyzes their potential effects on the future market structure and the competitive positions of the U.S. computer and communications industries.