Regulation requires sound economic data

After several years of effort to get government off the back of business, it is striking — as Advertiser Capitol Bureau Chief Kevin Dayton reported this week — that the latest legislative rage appears to be for more government regulation.

Specifically, lawmakers are looking at the possibilities of regulation in the fields of oil, health insurance and inter- island airline service.

Ostensibly, this is a response to growing consumer concern about concentration of market power in these three areas and economic foreboding that comes in the wake of Sept. 11.

Indeed, there may be a need for greater government oversight in these areas as the economic power of the state's relatively few players continues to grow. But lawmakers must be clear-headed about what they are doing and what they hope to accomplish.

Is regulation simply a way to create bureaucratic barriers to competition? That's not so far-fetched; usually the most ardent defenders of the dozens of state regulatory boards and commissions are the established industries they oversee. Deregulation, they argue, simply throws open the doors to newcomers who have not had to jump through the hoops put before the existing players.

And again, regulation can be appropriate when an industry is a vital need and there is a de facto monopoly or oligopoly (where there are so few players that actions by one affect actions, prices and costs for the others).

But before jumping head-first into regulation, lawmakers must satisfy themselves that such conditions exist in the case of oil (which means gasoline for the most part), health insurance and airline service.

It's easy enough to make a case that the conditions are ripe for regulation in all three areas: Chevron dominates the oil business, Kaiser and HMSA dominate the health insurance business and — if it happens — the Aloha-Hawaiian merger will leave Hawai'i with virtually one interisland airline.

But making the case and proving it are two different things. Legislators are on target for exploring whether the Hawai'i economy is at the mercy of unregulated monopolies/oligopolies. But before riding off into the regulatory sunset, they have to do more than argue their case; they have to prove it.