A broad and loosely defined concept, government regulation includes any public policy that operates by imposing constraints on private individuals or organizations, especially business firms. As a form of government intervention, it is distinguished from taxation, subsidy, and direct provision of services. Regulation seeks to achieve governmental goals, such as protecting the public from dangerous products or unfair sales practices, while leaving most business decisions to the discretion of management and the test of the market. It represents a halfway house between pure private enterprise and public ownership or \Teconomic planning\t. In the United States regulation extends to numerous industries and aspects of economic activity; it is carried on by state and local governments as well as the federal government. Several industries have been heavily regulated by the federal government--including agriculture, banking, securities, telecommunications, radio and television broadcasting, energy, and transportation. In some cases this regulation has been reduced or was eliminated in the 1970s and '80s. Besides regulating particular industries the federal government also regulates many or all industries with respect to certain aspects of business performance: these include wages and hours, labor relations, employment discrimination, environmental pollution, workplace safety, product safety, trade practices, and industry structure. In all, more than 50 federal agencies with approximately 80,000 employees are engaged in some form of regulation. State governments play a role in implementing some federal regulatory programs, and states act on their own authority to regulate certain industries (such as insurance) and occupations (from electricians to bartenders to medical doctors). These regulatory policies vary widely from state to state. Finally, there is considerable regulation in the form of local ordinances, much of it concerned with building practices, health and sanitation, and land-use planning. Although Americans often believe that the hand of government is peculiarly burdensome in the United States, government control is even more extensive in many other developed economies. Typically, the gas, electric-power, telephone, and railroad industries and at least one of the major television networks are publicly owned. Some countries, such as Sweden and Germany, have regulations requiring that labor representatives participate formally in corporate policy-making. In Japan, the Ministry of Trade and Industry (MITI) plays a large role in planning industrial development. In the command economies of the communist world, many of which are now undergoing drastic restructuring, the state generally owned all significant enterprises. THE CONTROVERSIAL ROLE OF REGULATION The proper scope of government regulation has long been controversial. Under the doctrine of \Tmercantilism\t dominant in Europe in the 16th, 17th, and 18th centuries, governments attempted to control manufacturing, trade, and shipping to achieve a favorable balance of trade and increase national wealth. Mercantilism was discredited by 18th-century economists such as Adam \TSmith\t, who urged governments to trust free markets--which he said would lead individuals, as if by a "hidden hand," to serve the whole society out of their own self-interest. The resulting ideology of \Tlaissez-faire\t liberalism was dominant in Great Britain and the United States during the 19th century. Some regulation was introduced, however, and in the 20th century it was expanded greatly. Today's liberals (unlike the bearers of that label in the 19th century) often advocate regulation to mitigate social and economic problems they associate with unregulated private enterprise. Conservatives usually oppose such plans--arguing that regulation diminishes freedom and makes the economy less efficient. Supporting neither extreme, most economists argue that markets are "imperfect" and may require government intervention in well-defined circumstances: (l) if there is a monopoly (see \Tmonopoly and competition\t); (2) if the cost of obtaining and using information (say, about food additives) prevents consumers or others from choosing intelligently; (3) if economic activities affect third parties (for example, by pollution); (4) if a good (such as police service or local parks) by its nature is consumed collectively and cannot be produced for sale to individuals. EARLY REGULATION Throughout American history, as the scholars Merle Fainsod and Lincoln Gordon have observed, regulation has been "initiated by particular groups to deal with specific evils as they arose, rather than inspired by any general philosophy of governmental control." The first regulatory programs were adopted, at the state level, to control businesses in a position to exercise arbitrary power. In Massachusetts, for example, a bank commission was created in 1838, direct supervision by the legislature having been tried and judged inadequate. The state also regulated railroads to prevent excessive rates, and in 1869 a railroad commission was created as an advisory body to strengthen implementation of existing laws. The federal government first assumed a major regulatory function to deal with railroads. In the 1870s protest by the National \TGrange\t, focusing on charges of unreasonable rates and discriminatory practices, led to regulation of railroads in a number of states. But state regulation of railroads proved ineffective, and in 1887 Congress created the \TInterstate Commerce Commission\t (ICC) and gave it modest authority to oversee the industry. Similarly, Congress superseded state regulation of trusts and monopolies in the \TSherman Anti-Trust Act\t of 1890. The ICC is an independent regulatory commission, a type of administrative agency used earlier by the states and subsequently in much federal regulation. Designed to be independent of the executive branch, such agencies are headed by a commission whose members (usually 5 or 7) are appointed by the president to fixed and staggered terms of office, with no more than a bare majority to be chosen from the same political party. Congress has often preferred this independence from party politics and the executive branch because the commissions have "quasi-legislative" and "quasi-judicial" powers, along with ordinary administrative authority. Besides the ICC, the principal independent regulatory commissions now in existence are the \TConsumer Product Safety Commission\t (1972), the \TFederal Communications Commission\t (1934), the \TFederal Reserve\t \Lboar\ld (1913), the \TFederal Trade Commission\t (1914), the \TNational Labor Relations Board\t (1935), the \TNuclear Regulatory Commission\t (1975), and the \TSecurities and Exchange Commission\t (1934). Other regulatory programs are administered by agencies located in the executive branch, such as the Antitrust Division of the Justice Department; the \TFood and Drug Administration\t (1931), in the Department of Health and Human Services; the \TOccupational Safety and Health Administration\t (1970), in the Department of Labor; the National Highway Traffic Safety Administration, in the Department of Transportation; and the \TEnvironmental Protection Agency\t (1970), which is independent of any cabinet department. REGULATION AND THE COURT The growth of regulation occasioned a half-century of debate over the requirements of the U.S. Constitution. In \TMunn\t v. \TIllinois\t (1877) the Supreme Court upheld the states' authority to regulate industries, such as railroads, that are "affected with a public interest." For much of the period from the 1880s to the 1930s, however, it vetoed numerous state and federal regulatory laws as unconstitutional. In \TUnited States v. E.C. Knight Company\t (1895), which narrowed the Sherman Act, and \THammer v. Dagenhart\t (1918), which invalidated a federal ban on goods produced by child labor, it held that federal authority to "regulate interstate commerce" did not extend to production. In other cases, such as \TLochner v. New York\t (1905), it used the due-process clauses of the 5th and 14th Amendments to invalidate regulatory measures as "unreasonable" or "arbitrary and capricious." The Court's construction of the commerce clause was defensible legally, though its use of the due-process guarantees to enforce conservative economic policies was strained. As Justice Oliver Wendell Holmes pointed out in a famous dissenting opinion, the Court was reading "a particular economic doctrine" into the Constitution. The Court abandoned this position during the Great Depression of the 1930s to accommodate President Franklin D. Roosevelt's economic recovery program. Since then, the Court has prohibited state regulation only if it conflicted with federal policy and has enforced no effective limits to federal control. The federal courts still review the actions of regulatory agencies on statutory grounds, exhibiting a new activism in recent years. But in many of these cases they have demanded more regulation. In Sierra Club v. Ruckelshaus (1973), for example, the Supreme Court ordered the Environmental Protection Agency (EPA) to establish a major program to prevent deterioration of air quality in unpolluted areas. Many critics argue that in adopting this activist role, the courts have often overlooked the technical and administrative complexities of regulatory issues. THE EXPANSION OF FEDERAL REGULATION Most of the expansion of the federal regulatory role took place in three waves, each occurring during a period of general political ferment and governmental activism. The Democratic party, which has been more liberal and less responsive to business than the Republican party, has controlled Congress in each of these periods; much of the time a Democrat also occupied the White House. Several major regulatory acts owed their impetus to the Progressive movement from 1900 to World War I. These include the Pure Food and Drug Act of 1906 (see \Tpure food and drug laws\t), the Hepburn Act of 1906 (which strengthened railroad regulation), and several major laws adopted in President Woodrow Wilson's highly productive first term: the Federal Reserve Act (1913), the \TClayton Anti-Trust Act\t (1914), and the Federal Trade Commission Act (1914). A second wave emerged from the economic chaos of the Depression, which produced widespread distrust of capitalism. Regulation was created or expanded for industries that many held responsible for the Depression (banking and the stock exchanges); that seemed to be victims of it (agriculture, coal, airlines, trucking); or for which regulation had previously been sought on other grounds (radio, telephone, food, drugs). In the \TNational Labor Relations Act\t, or Wagner Act, (1935), labor unions won a federally guaranteed right to collective bargaining. Several of these programs involved \Tpublic utility\t type regulation of prices and service, patterned after the ICC. In such regulation the agency decides an appropriate rate of return on investment for firms in the industry, establishes a rate base (the current value of this investment), and determines allowable costs of service. Finally, it sets prices intended to produce sufficient revenue to cover those costs and provide the appropriate rate of return. Since the firm is allowed to make money on its entire investment, officials must scrutinize a multitude of management decisions--for example, whether a common carrier needs a new microwave link between Chicago and Denver. Although favored by economists only where monopoly is unavoidable, public-utility regulation was also extended during the 1930s to transportation industries whose structure was highly competitive. A common complaint about the Progressive Era and New Deal regulatory programs has been that they are often "captured" by the industries they are supposed to regulate: that is, the industry becomes the dominant force in the agency's political environment and largely controls its decisions. Although this sometime occurs, the phenomenon has been overrated. For example, the Civil Aeronautics Board (CAB), 1938-84--often cited as the classic case of a captured agency--was created in the first place partly to assist the airline industry, and while it insulated airlines from the threat of outright failure, it did not make them notably profitable. The third and most consequential expansion was a product of the liberal activism of the 1960s and '70s. Promoted by a network of citizens' organizations and spokespersons such as Ralph \TNader\t, the measures of this period often sought "social" objectives (such as health or racial equality) instead of the "economic" objectives (reasonable rates or stable service) more characteristic of earlier regulation. Congress established or expanded regulatory programs in four areas of social concern: (1) \Tconsumer protection\t laws on trade practices, truth-in-lending, automobile safety, consumer products safety, prescription drug safety and efficacy, and other subjects; (2) environmental protection--including air pollution, water pollution, pesticide safety, strip mining, noise control, and toxic substances; (3) workplace safety--the Occupational Safety and Health Act of 1970 and a separate measure protecting miners; and (4) civil rights--provisions of the \TCivil Rights Act\t of 1964 and other laws dealing with discrimination in employment and access for the handicapped. The inflation and energy crises of the mid-1970s also produced a brief experiment with general wage and price controls and longer-lasting controls for petroleum products. Unlike earlier programs, which usually covered a single industry, social regulation has applied to broad segments of the economy. It has thus been difficult to administer and expensive to comply with. Established by presidential order in 1970, and strengthened by a dozen significant laws of the succeeding decade, the Environmental Protection Agency (EPA) quickly became the largest federal regulatory agency, with more than 10,000 employees and a multi-billion dollar budget. Compliance with its requirements was estimated to cost billions of dollars in capital expenditures alone. Partly because the environmental and the workplace-safety regulatory programs involve huge administrative tasks, such as inspecting tens of thousands of places of business, the states were given a large role in their implementation. DEREGULATION AND REGULATORY REFORM Since the mid-1970s the dominant trend in regulatory policy has been to prune away excesses of existing programs. Besides a generally more conservative public mood, this development reflects the judgment of many economists and other critics that some regulations are unnecessary or unduly costly and may hinder economic growth. The most successful reform effort has been to cut back regulation in industries where it has suppressed competition by restricting entry or setting a mandatory floor under prices. Procompetitive reform began administratively as early as the late 1960s, with relaxation of controls on stock brokerage commissions and telecommunications services. It became a force to be reckoned with by 1978--when the Air Transportation Deregulation Act completely removed price and entry controls in the airline industry and abolished the CAB. (The airlines are still regulated with respect to safety by the \TFederal Aviation Administration\t.) Subsequent legislation reduced anticompetitive regulation in the trucking, bus, railroad, and banking industries. Federal regulation of petroleum and natural gas pricing and local regulation of cable TV pricing--programs that had set price ceilings rather than floors--were also phased out. A roughly comparable movement has been under way in many other countries, especially in Western Europe, where transportation, communications, and financial services have undergone significant deregulation since the mid-1970s. Changes in European regulatory policy have been driven in part by an effort to eliminate all trade barriers within Western Europe as of 1992. The effects of deregulation have been much debated. Clearly, it caused temporary instability in some industries: airlines scrambled to restructure their route systems and several went bankrupt in the process; consumers suddenly had to choose their long-distance telephone carriers; and barriers that once separated several forms of banking and kept the whole industry apart from other kinds of financial service were attenuated. There were also lasting problems. Rates and fares for transportation services became less predictable and sometimes burdensome, especially for small towns and rural areas. Most important, however, the deregulation of banking--along with lax performance of remaining supervisory functions and an overly generous deposit insurance program--led to the collapse of the savings and loan industry and the severe weakening of the banking industry (see \Tbanking systems\t; \TSavings industry\t). The calamity required a major federal bailout, with costs in the hundreds of billions of dollars to taxpayers. Critics of the reforms have called for the reregulation of several industries. Yet, on the whole, deregulation has had the effects that advocates promised. As a large body of economic research has now demonstrated, deregulation has pushed average prices down, forced improvements in efficiency, and promoted innovation in the affected industries. No sweeping return to price and entry control appears likely. A less successful effort has been made to control the costs of health, safety, and environmental regulation. Presidents Gerald Ford and Jimmy Carter both established special advisory units to oversee regulatory agencies and create pressure to limit costs. President Ronald Reagan, even more determined to reduce costs, empowered the U.S. Office of \TManagement and Budget\t to review new regulations and require changes as a condition for their issuance. The main strategy in the effort to control costs has been to subject regulations to \Tcost-benefit analysis\t--a set of methods for assessing whether their potential benefits in health, safety, or other values are worth the costs to be imposed on industry and passed on, for the most part, to consumers. Cost-benefit analysis is controversial, however, because its results are tied to debatable choices of methods and assumptions and because, critics say, its stress on measurable effects creates a bias against the intangible values often served by regulation. Reformers have also proposed to amend regulatory statutes like the Clean Air Act and the Occupational Safety and Health Act that instruct agencies to pursue a primary goal, such as protection of health, while giving them no mandate to weigh the costs. There has been little success with such proposals, however. The Reagan administration loosened regulations administratively and weakened enforcement by cutting budgets but made little effort to work with Congress on statutory reforms. Reagan's militant posture on regulation made collaboration with Congress almost impossible. President George Bush, who campaigned on a promise to be an "environmental president," has taken moderate positions on regulatory issues. In his successful sponsorship of the 1990 Clean Air Act amendments, he supported strong measures to deal with acid rain and promoted innovative, marketlike strategies for improving the efficiency of pollution control. It remains to be seen whether the Bush administration will sponsor wide-ranging regulatory reform. Paul J. Quirk Bibliography: Bardach, Eugene, and Kagan, R. A., Social Regulation: Strategies for Reform (1982); Derthick, Martha, and Quirk, P. J., The Politics of Deregulation (1985); Eads, G. C., and Fix, Michael, Relief or Reform: Reagan's Regulatory Dilemma (1984); Kahn, A. E., The Economics of Regulation, 2 vols. (1970-71); Melnick, R. S., Regulation and the Courts: The Case of the Clean Air Act (1983); Reagan, M. D., Regulation: The Politics of Policy (1987); Shepherd, W. G., Public Policies toward Business, 7th ed. (1985); Stigler, G. J., ed., Chicago Studies in Political Economy (1988); Wilson, G. K., Business and Politics: A Comparative Introduction (1985); Wilson, J. Q., ed., The Politics of Regulation (1980).