Although the central government always makes some effort to legally control some activities, from the strategic side, in fact, there´s much more capacity to move across businesses than ever before. A company has a few limitations when moving from one industry to another, especially with M&A.
Airline pricing, entry, and exit have been fully deregulated. Intrastate rates, entry, and exit have been fully deregulated. Railroads' rates, including contract rates, have been deregulated, but ''tariff'' rates for certain commodities are still subject to maximum rate ''guidelines.
In the financial world, one good example is the “Big Bang” in London. Big Bang here refers to deregulating the London Stock Exchange (LSE). Deregulation allowed for free-market competition in the financial markets and made London a major European centre of finance.
There were three key components of the Big Bang:
- Abolishing minimum fixed commissions on trade. This allowed for more competition.
- Ending the separation of dealers and advisors. This allowed for more mergers and takeovers.
- UK brokers could be owned by foreign firms. London could now operate in foreign markets.
The Big Bang produced a ‘free for all’, which caused many big banks to take over smaller ones. Some UK banks were bought up by larger European, American, or Japanese banks. This projected the narrative that these larger banks were ‘too big to fail’.
The volumes of trade increased significantly after Thatcher's deregulation policies, and the costs for these firms were reduced.
The deregulation policies not only impacted the financial market but also changed London’s geography. Many banks were now around a 10-minute walk away from each other and, importantly, from the Bank of England.
Initially, many people benefited from the deregulation of the financial markets. But there were many dangers ahead. For example, the financial market could lead to a ‘boom and bust’.
The narrative was that these large banks were 'too big to fail' and a few of them practised unethical behaviours. This laid the groundwork for the 2000 Dotcom Bubble and the 2008 Financial Crisis.
Nevertheless, there´s a massive agreement across the business world that deregulation lowers the costs of operations, allows more businesses to enter a market, and lowers prices for consumers. These factors, combined or separately, can help stimulate efficiency and lead to increased economic growth.
