The fact that deregulation occurred in several industries in the short time span of ten years has heightened interest in explanations of policy and regulatory change. The bureaucratic politics and economics literature suggests that it is difficult to change policy because of powerful subgovernments, the alliances among congressional committees, the regulated interests, and the regulatory agencies. Earlier studies of policy changes, such as those by Schattschneider (1960) or Fritchler (1969), argued that change required the development of a large coalition of interests to overcome subgovernment dominance. While this literature pointed in the right direction, it fails to account for changes in preferences within the subgovernment alliance partners that can be brought about by new ideas, technology, and economic developments.

Some of the most recent literature on deregulation has focused on these kinds of societal changes that undermine a unified subgovernment by involving other actors such as the president or the courts. The most prominent explanation postulates that ideas developed by economists and popularized by journalists created a pro-deregulation climate of opinion that convinced policy makers to support policy change (Derthick and Quirk, 1985; and Quirk, 1988). The economists' argument was that regulation causes inflation and slows productivity, and that deregulation would unleash the powers of competition and spur economic growth. Presidents were elected who held this view, and they appointed people with similar beliefs so that the regulatory agencies would reduce and eliminate regulations. Congress was also caught up in the climate of opinion favorable to deregulation and gave its approval to changes initiated in the executive branch, despite opposition from the regulated industries and congressional oversight committees.

Another explanation of deregulation focused on economic and technical change in society and its impact on the regulated firms (Hammond and Knott, 1988). Sometimes economic and technical change permitted regulated firms to circumvent the regulations. In other instances economic and technical change fostered the birth of new firms and products outside the regulatory guidelines. These firms turned to the courts to challenge the regulatory restrictions that prevented them from entering the market. In general, because regulations proved to be inflexible and unresponsive to these economic and technical developments, regulated firms were often unable to compete successfully against the unregulated firms. Congressional approval of deregulation legislation served to ratify changes that had already taken place in the economy.

The problem with these explanations is that neither can adequately explain changes in all sectors of the economy. The economic and technical change explanation works better for banking and telecommunications: in both of these cases there was significant lobbying for change and for the development of competitive firms through technical and economic innovation. In contrast, the climate of opinion explanation works better for trucking and airlines, since in these two cases there was relatively little technical and economic innovation which fostered outside competition and the regulated industries opposed change. The other limiting feature of these explanations is that both fail to address the role of government institutions in determining policy change. It seems to matter little that the government has separation of powers, a bicameral legislature, a presidential veto, and congressional committees. Finally, both types of explanations posit a single cause, either climate of opinion or economic/technical change. Neither explanation examines the interaction among causal factors, including the role of the various institutions involved in the policy process.

The need for a Multi-Institutional Focus

If government institutions not only fail to take an active role in policy change, and they also do not serve as a filter or lens to shape different policy outcomes in different sectors, as these arguments seem to imply, would we expect to find variation in policy change outcomes from one sector of regulation to another? The climate of opinion explanation would predict little variation from one economic sector to another in legislative outcomes since the deregulatory idea attacked price and entry regulation in general, not the specifics of any individual industry. But if differences in policy outcomes do appear, they should be closely associated with difference in rates of technical and economic change, if the second explanation is correct.

What does the pattern of deregulation outcome look like? Clearly there is variation in outcomes from one sector to another as well as variation in the speed and timing of deregulatory changes. The causes and nature of the variations, however, are more difficult to decipher. The most dramatic congressional action occurred in 1978 with the abolishment of the Civil Aeronautics Board (CAB) over the opposition of the airline industry. The Act gave the president exactly what he had wanted in a legislative and policy outcome. The Act dealt with airline deregulation in a comprehensive manner in a relatively short period of time. Another area of deregulation that proved to be comprehensive and timely was the deregulation of the trucking industry. In 1980, Congress passed the Motor Carrier Reform Act which deregulated trucking. The Act reflected a compromise between the interests of the trucking industry and forces favoring complete deregulation, and it did not go as far as the president preferred. Nonetheless, this Act significantly deregulated trucking and fundamentally altered the competitive nature of the interstate trucking market.

Other legislative outcomes in deregulation were not nearly this complete or quick in their deregulatory success. In banking, the outcome proved to be less complete and much more incremental in process. From time to time Congress passed piecemeal legislation that allowed banks and other financial institutions to engage in previously-denied competitive activities. The issues were never dealt with in a comprehensive or timely manner and substantial areas of banking are still regulated (Meier, 1985). Moreover, the savings and loan debacle painfully reveals the lack of a comprehensive and successful strategy of deregulation in this economic sector. Aside from banking, the most complicated case is the telecommunications industry. Congress failed to pass any legislation in telecommunications despite the introduction of many bills, and many committee debates and hearings were held on the subject over a course of several years. The dramatic breakup of AT&T was brought about by court decisions and congressional inaction. To this day no comprehensive telecommunications deregulation act has passed Congress. (Temin and Galambos, 1987).

These differences in deregulatory outcomes raise a question about the ability of the climate of opinion hypothesis to sufficiently explain why deregulation occurred. The more difficult question is: do these differences reflect changes in the economy and technology, or do they also show an impact of institutions on the outcomes?

There is no doubt that differences in legislative outcomes correlate with differences in technical/economics change among the sectors. Telecommunications and banking experienced more dramatic changes than trucking and airlines. The catch-up and piecemeal nature of deregulation in these sectors reflects the difficulty of the legislative process in keeping pace with events in the economy and the courts. The deregulatory climate of opinion in each case also tipped the legislative balance in favor of deregulation or at least against extending regulation. Thus both of these explanations have proved useful in understanding what happened.

A more satisfactory explanation of deregulation, however, requires an analysis of the interaction between these outside forces and the policymaking institutions of government. A comparative study across sectors raises the intriguing question of when Congress acquiesces in changes brought about by the courts and the economy without taking action on its own. Such a study also raises the issue of when policy is more incremental versus comprehensive in process and outcome. Finally, a comparative approach reveals how ideas, institutions, and societal forces interact to produce the significant differences in legislative outcomes that have occurred.

The Importance of the Status Quo

A common insight into how American institutions affect policy outcomes is that there is a bias in the federal government toward the status quo. Hammond and Knott (1992) develop a formal model of policy making involving the Congress and the president. The model demonstrates that with sophisticated actors in the policy making game there are eight conditions under which the status quo is in equilibrium and only two conditions under which the status quo can be upset. For example, the gatekeeping role of the congressional committee means that committees can more easily defend the status quo than they can change it. To defend the status quo, committees can simply decide not to report out bills. Bringing about a change in the status quo requires successfully passing a bill out of committee, passage on both floors of the Congress, the sister committee in the other chamber, and signature by the president. If the president vetoes the bill, passage requires a 2/3 majority in each chamber. Therefore, defense of the status quo is easier than change in the status quo.

Exogenous Initiation of Policy Change

Given the bias of institutional procedures in Congress in favor of the status quo, how was it possible for such dramatic deregulation to occur in the face of opposition from the oversight committees? The answer is as intriguing as it is simple: institutions other than Congress initiated the changes in the status quo. Two institutions played a critical role. The courts increasingly tended to uphold competitive practices and oppose restrictive interpretations of regulatory laws, and the regulatory agencies used their broad mandate originally passed by Congress to make policy changes. It is thus possible for a difference to develop between the legislative status quo represented by the preferences of the standing committees and a policy status quo that develops during the implementation of statutes over time. If the policy status quo changes exogenously through court decisions, for example, the committee is in the position of having to reconstruct the status quo through legislative action. This action, as we have seen, requires the passage of a bill to be voted on by other committees, the floors of both chambers, and signed by the president. This difference between passing a new bill and defending an old one is crucial to understanding the effect of institutional procedures on the relative power of committees.

The president can also make a difference. In trucking and airlines, Presidents Ford and Carter took an active role in proposing legislation and in appointing people with deregulatory views to the regulatory agencies. In both cases the president spoke out in favor of legislation and a deregulatory outcome. In contrast, in banking and telecommunications the presidents played a very minor role and mostly sat on the sidelines through the legislative process. In both cases, no comprehensive legislation passed the Congress.

Explaining Variations in Legislative Outcomes

In two of the deregulatory cases, trucking and airlines, the president and regulatory agencies actively sought to bring about policy change. In trucking, Presidents Ford and Carter strongly advocated deregulation and appointed people with deregulatory views to the commissions. In both of these areas as well, Congress passed the most comprehensive legislation. In airlines, the president got almost exactly what he wanted, while in trucking he got very close to his preference with some modification to accommodate trucking interests.

Why did Congress pass this legislation despite opposition from the standing committees? The answer has to do with the relation of the various institutional actors to the new policy status quo created by presidential actions. The standing committees found that they had lost control over regulatory policy under their jurisdiction. The judiciary committee chaired by Senator Edward Kennedy, claimed rival jurisdiction of deregulatory legislation proposed jointly by his committee and the president. More importantly, the majority in both chambers supported the new policy status quo created by the president's actions. In airlines, this floor majority was slightly stronger than in trucking, where the president had to accept certain compromises proposed by trucking interests (Rothenberg 1987, Weingast 1981). In both cases, the standing committees belatedly came to support the legislation for fear of losing jurisdiction of trucking and airlines.

In banking and telecommunications two institutional factors produced different results. In telecommunications, no legislation passed the Congress, while in banking piecemeal and incremental bills passed the Congress but no comprehensive deregulatory bill was considered. The presidents and the regulatory agencies stayed mostly on the sidelines in both policy areas. Exogenous policy change came through economic/technical changes supported by court decisions. Electronic banking and money market funds allowed brokerage houses to compete successfully with banks and allowed some banks themselves to circumvent the regulations. In telecommunications, a similar technical development allowed competitors to offer alternative service to AT&T in long distance and telephone equipment.

Secondly, the floors of both chambers were divided over the direction and extent of deregulatory policy change, while the committees were more sympathetic to these changes than the floors and the president. In the 1970s AT&T had sought to extend regulation to its competitors and to solidify its monopoly through new legislation. The committees acted to block this legislation, despite strong support on the floors. A similar role was played by the committees in banking when they blocked the extension of regulation to brokerage houses, a move supported by the larger banks.

In these cases the floors and committees in both chambers were divided in their support for deregulation. In banking, rifts occurred between the big and small banks and the savings and loan association over deregulating the interest charged on checking and savings deposits. The legislation passed reflected compromises between small banks which opposed deregulation and large banks which favored it and between banks and savings and loans which wanted deregulation but on terms more favorable to them.

It proved impossible to pass legislation to deregulate all aspects of the financial industry. The geographical restrictions on where banks could operate remained in place, and, until 1989, banks and S & Ls were given no access to commercial investment markets. While staving off the collapse of the banking industry in the early 1980s, an incremental approach did not save the S & Ls or protect the banking system from the difficulties regulation had created.

In telecommunications the rift occurred over the restrictions that should be placed on a deregulated AT&T to prevent it from becoming a private monopoly again. Rural areas were concerned about the continuation of service, while urban areas worried about the increase in prices for individual long distance telephone calls. There was also the issue of AT&T entering other markets, such as electronic publishing, the relationship between AT&T, Bell Laboratories, and the operating companies. While this legislative process was taking place, an anti-trust suit was underway against AT&T. The judiciary committees in the Congress took the stance that they should have a review of proposed legislation from the oversight committees, and several members of the Judiciary committees felt that legislation interfered with the legal suit.

These disagreements between the committees and the floors led to a prolonged impasse in Congress. On the other hand, the debates and hearing provided information to Judge Harold Greene, AT&T, and the executive branch on the range of preferences in the Congress with respect to divestiture. The stalemate in the Congress convinced AT&T to pursue a court solution to its problems, while at the same time the nature of the final divestiture agreement reflected most of the preferences of the House and Senate committees. The interplay among the committees, the floor, the court, AT&T, and the executive branch produced the final divestiture solution, even though no legislation ever passed the Congress.

Summary

Explaining policy change requires a multi-dimensional model that incorporates the climate of opinion, economic/technical forces, and institutional dynamics. Explanations that have focused just on changes in ideas, technology, or the economy fail to account for the differences in legislative outcomes that have occurred.

In earlier decades, the pressures of technical and economic changes led railroads to seek to extend regulation to its competitors. A climate of opinion favorable to regulation was influential in successfully extending railroad regulation to trucking and airlines, and in preventing any deregulation until the 1970s, despite several attempts by presidents to deregulate transportation. In the past two decades, AT&T sought to extend regulation to its competitors and banks sought to extend regulation to brokerage houses. However, a changed climate of opinion tipped the legislative process against the extension of regulation. The banks and AT&T eventually had no choice but to seek deregulation of their own activities to be able to continue to compete successfully.

Explaining policy change also requires a multi-institutional model. While policy subgovernments that consist of an executive agency, interest groups, and congressional committees are obviously important to understanding policy making, the dynamics of policy change in the deregulatory area involved a much broader number of institutional actors inside and outside the Congress. The institutional procedures of the Congress favor the status quo. Indeed, these institutional procedures give rise to the power of subgovernments to control policy. However, if forces outside the Congress can change the status quo through executive or court action, the committees in the Congress then have to pass new legislation to bring the policy back to the status quo ante. All the veto points in the legislative procedures that previously worked to prevent a change in the status quo now work to prevent a return to the status quo ante. In every case of deregulatory policy change, forces outside of Congress initiated the changes.

Finally a critical role of the status quo, and the relation of the institutional actors to it, needs to be a central feature of models of policy change. One key factor is whether the president takes action to change the status quo and whether the courts support changes in the status quo. These actions make it much easier for the president to propose legislation to change the status quo. The president's best legislative strategy is an alliance with a committee, such as the judiciary committee, which historically would not have been part of the policy subgovernment. Such an alliance forces the oversight committees to support the legislation of to risk losing their traditional jurisdiction and control over the policy area. This strategy only works, of course, if there is a favorable climate of opinion on the floors to support of be indifferent toward the change in policy.

References

Derthick, Martha and Paul J. Quirk. 1985. The Politics of Deregulation. Washington: Brookings.

Fritchler, A. Lee. 1969. Smoking and Politics: Policymaking in the Federal Bureaucracy. New York: Appleton.

Hammond, Thomas H. and Jack H. Knott. 1988. "The Deregulatory Snowball: Explaining Deregulation in the Financial Industry." Journal of Politics, 50: XXX.

Hammond, Thomas H. and Jack H. Knott. 1992. "Explaining Congressional Outcomes in the Deregulation of Banking, Transportation, and Telecommunications." Unpublished paper.

Meier, Kenneth J. 1985. Regulation: Politics, Bureaucracy, Economics. New York: St. Martins Press.

Quirk, Paul J. 1988. "In Defense of the Politics of Ideas." Journal of Politics, 50: 31-41.

Rothenberg, Lawrence S. 1987. "Presidential Management of the Bureaucracy: The Reform of Motor Carrier Regulation at the ICC." Paper presented at the Annual Meeting of the Midwest Political Science Association.

Schattschneider, E.E. 1960. Semisovereign People: A Realists View of Democracy in America. New York: Holt, Reinhart, and Winston.

Temin, Peter and Louis Galambos. 1987. The Fall of the Bell System: A Study in Prices and Politics. Cambridge: Cambridge University Press.

Weingast, Barry R. 1981. "Regulation, Reregulation, and Deregulation: The Political Economy of Agency Clientele Relationships." Law and Contemporary Problems, 44: 147-177.