Reagan's Reduction of Big Government

New Federalism

Positive - Less federal interference in:

• State and local affairs

• Business (including world trade)

• Finance

• All aspects of people’s lives

Negative - Less:

• Funding for state and local government projects

• Regulation of business expansionism and greed

• Control over foreign imports

• Social welfare for the most needy

1982 State of the Union address

Since he came to power, the administration had:

• Cut federal regulations almost in half, removing 23,000 pages from the Federal Register (which contains all federal regulations). This had 14,500 pages in 1960 and 87,000 when Reagan came to power

• Helped to bring down the cost of petrol and heating fuel by deregulation

• Created a federal strike force to combat government fraud and waste that had saved $2 billion in six months

• Replaced federal agencies with private sector ones and federal employees with volunteers

Public image

• Used everyday images when discussing change; small-scale savings were more real to the public

• Discussed deregulation as if it was something he had instigated, but it was begun by Carter (airlines, drafted bills on deregulating trucking, the railways and some areas of finance)

Deregulation Legislation

• 29 January 1981 - EO to stop wage and price regulation

• 26 March 1981 - EO sets up the President’s Council on Integrity and Efficiency

• 8 April 1981 - EO sets up Presidential Advisory Committee on Federalism

• 17 July 1981 - Deregulation of controls on fuel prices

• 20 September 1982 - Bus Regulatory Reform Act deregulates bus services

• 15 October 1982 - Garn St Germain Depository Institution Act deregulates Savings and Loans institutions, allowing them to invest in more ventures and more freedom in mortgage lending

• 26 February 1983 - Deregulation of natural gas supplies

• 20 March 1984 - Shipping Act loosens regulations on US and foreign shipping

• 30 October 1984 - Cable Communications Act deregulates cable communications

• 22 October 1986 - Surface Freight Forwarder Deregulation Act Greater freedom for people working with various trucking companies to ‘bundle’ part loads to be carried by one of them

• 23 August 1988 - Foreign Trade and Competitiveness Act allows the president more rights in making trade treaties to benefit the USA

Problem of removing controls

• Big companies bought out struggling small companies → rise in number of conglomerates

• Businesses set their own standards of saftey lower than government regulators

• Initially, deregulation brought lower prices through competition → as big businesses grew, it was more likely that several big businesses would ‘fix’ a price structure, so that they did not have to compete

• Many businesses, from phone companies to airlines, cut services provided (or areas covered by their services) to maximise profit → rural areas suffered

The Savings and Loans collapse

• 1983 - Carter had put some banking deregulation in place and Reagan applied it to Savings and Loans institutions 

• Banks could offer high interest rates on savings 

  • Good for savers 

  • Bad for struggling businesses and people with long-term loans (who could not switch to the lower-interest loans) 

• Banks and S&Ls competed for custom 

  Positive: 

  • Those who had savings and who were able to understand various offers benefited 

  Negative: 

  • S&Ls run by people used to making safe investment -> before deregulation they had mostly provided mortgage loans at a regulated rate of interest 

  • When they began to compete with banks, they made increasingly risky investments, lent at very low rates and offered high rates of saving 

  • Many S&Ls failed through incompetence 

• 1987 – The federal government was forced to pass the Competitive Equality in Banking Act 

  • Provided money to cover the money lost by closed S&Ls  

  • It was not enough 

• 1988 – S&Ls had lost $10 billion 

• 1989 – Property market collapsed 

  • Bush had to sign the Financial Institutions Reform, Recovery and Enforcement Act (which bailed out some failing organisations, closed others and set up new federal regulators) -> cost $150 billion 

Effects of policies on trade

• The balance of world trade shifted against the USA, as the buying power of the dollar weakened 

  • Foreign imports became cheaper 

  • Imports of foreign goods rose 

  • American companies lost business 

• The textile industry was particularly badly affected between 1980 and 1985 

  • 250 textile plants were forced to close 

  • 300,000 workers lost their jobs 

• The USA was a global borrower for the first time, rather than 'the world's banker' 

• American companies were being bought up by foreign companies 

• Rise of foreign imports as positive 

  • Gave consumers more choice 

  • Made the USA an attractive place for other countries to trade and invest in -> claimed Japanese investment was bringing money into the country, ignoring the fact that many Japanese reinvested their profits in Japan

A Japanese invasion?

• 1970s – Japanese companies began to increase car sales in the USA 

  • The fuel crises led people to want cars that used as little fuel as possible – small Japanese cars rather than American 'gas-guzzlers' 

• 1980s – Japanese firms began to establish themselves in the USA by: 

  • Buying up a US firm entirely 

  • Investing heavily in a US firm, usually a small one; the small company got start-up help, but was dependent on its Japanese stockholder 

  • Running a company jointly with the American owners 

• Often chose parts of the country where federal government and US businesses were not investing, such as South Carolina 

  • Did not result in much job creation -> in 1987, there were around 3 million Americans working for Japanese companies, but most were not in newly created jobs 

  • However, they weren't unemployed because the company had gone under (which might have happened without investment)

Extent of reduction of big government

• Congress agreed to deregulate oil prices, but blocked plans to remove regulations on environmental issues such as pollution and working conditions at nuclear power stations 

• State and local governments were unwilling to take over areas of government and projects under federal control 

  • Did not want to pay for something that was otherwise federally funded 

• Unlike Carter's administration, Reagan did not introduce many new regulations 

  • Congress persuaded Reagan to pass the Food Security Act in 1985 

  • This gave help to federal farmers who were struggling with falling prices and the falling value of farmland 

  • Reagan made it clear this help was an exception, forced on him by Congress

Legacy

• By the time Bush came to power, people were less keen on deregulation and federal withdrawal from state and local affairs 

• Industry and banking deregulation had been running for long enough for people to see the negative effects of deregulation 

• It had become clear that many deregulated businesses were more interested in their own benefit than public benefit 

  • Pre-deregulation aeroplanes flew to all over the USA and were often only half full 

  • By 1989, the big companies had corrected the initial price fall from competition. Prices were high; planes flew to fewer places, less often and were tightly packed 

• Federal withdrawal from state and local programmes often meant the collapse of programmes through lack of funding 

  • Poor rural areas found themselves at the back of the queue for communications services, transport services and basic maintenance such as road repair