The Evolution of Regulation: Twentieth Century Lessons and Twenty-First Century Opportunities

TABLE OF CONTENTS I. INTRODUCTION AND OVERVIEW II. BACKGROUND: THE EVOLUTION OF REGULATION A. The Rise of the Regulation B. Stability of the Early Years C. Ideological and Intellectual Underpinnings of Deregulation. D. The Inklings and Promise of Results-Based Regulation III. RESULTS-BASED REGULATION: A NEW FRAMEWORK FOR TWENTY-FIRST CENTURY POLICYMAKING IV. RESULTS-BASED REGULATORY POLICY: THE CASE OF TELECOMMUNICATIONS V. CONCLUSIONS AND CAVEATS What these rules should be is the principal question in human affairs; but if we except a few of the most obvious cases, it is one of those which least progress has been made in resolving. (1) John Stuart Mill On Liberty, 1859 I. INTRODUCTION AND OVERVIEW During the second presidential debate of the 2008 election, then candidate Barack Obama opined, with respect to financial markets, that [t]he problem is we still have a[n] archaic, 20th-century regulatory system for 21st-century ... markets. (2) While the focus on regulatory reform in financial markets has subsequently been pronounced, an important set of questions remain regarding the applicability of this phrase to other traditionally regulated industries such as telecommunications. In this paper, I explore this issue by focusing on lessons that may be learned from both the evolution of economic analysis and regulatory experiences during the past half-century. I find, inter alia, that while the trend toward deregulatory policies over the past half-century was nominally motivated by a push toward economic efficiency, policymakers were also attracted to deregulatory policies by deep-seated ideological desires to protect individual freedoms deemed to be infringed by regulation. (3) With the emergence of the 2008 financial crisis in the United States, that simple ideology has receded, giving way to another equally crude ideology that calls for more government regulation and controls. (4) This shift in ideological passions, however, is unlikely to provide proper guidance for any regulatory system that takes seriously the goal of promoting economic welfare. Aside from ideological predispositions as guideposts for regulatory policy, the question remains whether there is an alternative, fundamentally sound foundation for guiding regulatory and deregulatory policies. In that regard, careful reflection on the evolution of regulation since the early 1960s reveals a subtle but potentially substantive and meritorious basis for calibrating regulatory and deregulatory policymaking in the twenty-first century. In particular, when stripped of the ideological drivers, the most successful dimensions of regulatory and deregulatory policymaking in the past half-century can be seen as decidedly results-based. (5) In this paper, I describe and document this set of more subtle regulatory developments and explain how they have provided for the soundest regulatory decisions over the past fifty years. Drawing on these developments, I then propose a set of principles that hold the potential to underlie a new results-based regulatory framework. Results-based regulation (RBR) draws upon the most successful aspects of both regulatory and economic analysis over the past fifty years with the aim of establishing principles that can guide policymakers as they pursue regulatory and deregulatory policies in the twenty-first century. The potential for, and the urgency to establish, a twenty-first century results-based regulatory paradigm is significant. And, while the significance of a results-based regulatory framework is relevant to a wide swath of industries, it is particularly important in the case of the telecommunications industry. Specifically, the twentieth century regulatory infrastructure for telecommunications was designed for a monopoly, and while legislative reforms enacted in 1996 embraced competition, the regulatory infrastructure has remained fully entrenched. …