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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  4 The events surrounding Enron and WorldCom have caused a great deal of soul searching among those political representatives who have long championed the cause of deregulation such as Rep. Barton (R-Tex), who told Business Week, “We spent the last ten years breaking down walls between businesses, I think that’s over” (“The Enron Scandal,” 2002). Similarly, Congressman Peter DeFazio (D-OR) concludes: Contrary to the claim of so-called experts, the rash of corporate scandals was entirely predictable. It was the inevitable result of a failed experiment with radical deregulation plans, and massive corporate influence over Congress and the Executive branch. (p.2) THE DEREGULATION PARADOX A basic tenet of free market competition is that the private sector is the primary engine of growth. Free market competition means opening one’s financial and telecommuni- cation systems to private ownership and competition and providing a nation and its citizens with access to a wide variety of choices (Friedman, 1999). In principle, deregulation is suppose to foster competition and thereby open markets to new service providers. The problem, however, is that complete and unfettered deregulation can sometimes create the very problem it was meant to solve; namely, a lack of competition. Instead of fostering an open marketplace of new players and competitors, too much consolidation can lead to fewer players and hence less competition (Mosco, 1990; Gershon, 2001, 1997; Demers, 2000, 1999). Researchers like Mosco (1990) call it the "mythology of telecommunications deregulation." Other writers such as Demers (2000), refer to it as the "great paradox of capitalism." We simply call it the “deregulation paradox.” (2001, 1997) As Demers (2000) points out,

Authors: Gershon, Richard. and Alhassan, Abubakar.
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4
The events surrounding Enron and WorldCom have caused a great deal of soul

searching among those political representatives who have long championed the cause of

deregulation such as Rep. Barton (R-Tex), who told Business Week, “We spent the last ten

years breaking down walls between businesses, I think that’s over” (“The Enron Scandal,”

2002). Similarly, Congressman Peter DeFazio (D-OR) concludes:
Contrary to the claim of so-called experts, the rash of corporate scandals
was entirely predictable. It was the inevitable result of a failed experiment
with radical deregulation plans, and massive corporate influence over
Congress and the Executive branch. (p.2)
THE DEREGULATION PARADOX
A basic tenet of free market competition is that the private sector is the primary

engine of growth. Free market competition means opening one’s financial and telecommuni-

cation systems to private ownership and competition and providing a nation and its citizens

with access to a wide variety of choices (Friedman, 1999). In principle, deregulation is

suppose to foster competition and thereby open markets to new service providers. The problem,

however, is that complete and unfettered deregulation can sometimes create the very problem

it was meant to solve; namely, a lack of competition. Instead of fostering an open marketplace

of new players and competitors, too much consolidation can lead to fewer players and hence

less competition (Mosco, 1990; Gershon, 2001, 1997; Demers, 2000, 1999). Researchers like

Mosco (1990) call it the "mythology of telecommunications deregulation." Other writers such

as Demers (2000), refer to it as the "great paradox of capitalism." We simply call it the

“deregulation paradox.” (2001, 1997) As Demers (2000) points out,


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