Public Release: 

Kahn: How To Deregulate Deregulation

Cornell University

ITHACA, N.Y. -- Applying what he learned from spearheading the deregulation of the airline industry, Alfred E. Kahn, the Robert Julius Thorne Professor of Political Economy Emeritus at Cornell University and one of the most influential figures in public utility deregulation, says to current regulators: "Do the bare minimum and then let go." As the "father" of airline deregulation when he was chair of the Civil Aeronautics Board from 1977 to 1978, and the author of the landmark two-volume set The Economics of Regulation, Kahn applies his experience and perspective to evaluating the regulatory process and policies now transforming the telecommunications and electric power industries. He shows how current regulatory efforts are biased toward producing immediate results and offers concrete suggestions on how to deregulate for optimal long term success.

Granted, deregulating the electric power and telecommunications industries is complicated, Kahn says in his new book, Letting Go: Deregulating the Process of Deregulation, or: Temptation of the Kleptocrats and the Political Economy of Regulatory Disingenuousness (Institute of Public Utilities and Network Industries, Michigan State University, 1998). Many consumers depend on the only local utility available, Kahn observes, so their service must be protected. Regulation will be required, he says, to assure competitors access to the utility companies' lines and wires, on terms that permit them to compete if they are equally efficient.

Also, the utility companies are entitled to a fair opportunity to recover the major portion of the billions of dollars they have invested in the past, in good faith, under a system that assured them such an opportunity if they would serve the public ubiquitously and on reasonable terms, Kahn points out.

"Thus, regulators can't simply let go; but they do need to be careful about being too controlling or too biased in favor of potential competitors," says Kahn. "Regulators also need to resist the political pressure that calls for quick results in attracting more competitors, whether efficient or inefficient, or reducing consumer rates in violation of their implicit compact with the companies: hence my reference to their avoiding the 'temptations of the kleptocrats.'"

Genuine deregulation will produce real competition and big consumer benefits, but much of it will take time, Kahn adds. He says that the best thing regulators can do, after establishing the preconditions for efficient competition, is "get out of the way. They have got to resist their inbred tendency to micromanage everything and to proclaim great consumer benefits, publicly, while doing everything they can to conceal the costs. That's why I've subtitled the book, the 'political economy of regulatory disingenuousness,' of which I cite some examples."

The 146-page paper-bound book, which is intended for regulators, regulated companies, policymakers, academics and economists, is an expanded version of Kahn's keynote lecture at the 1996 Annual Conference of the Institute of Public Utilities.

To order the book for $19.95 plus shipping and handling, contact Margie Gray, Institute of Public Utilities, the Eli Broad Graduate School of Management, by telephone at 517-355-1876 or by fax at 517-355-1854.

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