For the past 30 years, policy innovation in the United States and much of the industrialized world has centered on “liberalizing” markets and allowing competitive forces to unleash human creativity and flexibility. Legislators have relaxed restrictions on competition in telecommunications, banking, airlines, and a variety of other markets, ostensibly to enhance the efficiency of each market and thereby benefit both consumers and producers. This wave of “deregulation” has had a decidedly mixed track record. The easing of U.S. banking restrictions in the 1980s, for example, facilitated a host of financial innovations within the sector, but also contributed to the disastrous savings-and-loan crisis of the late 1980s. The deregulation of the airline industry in the late 1970s was deemed a success for consumers, but the promotion of competition in electricity markets in the 1990s was less successful.

Today, as policymakers consider further deregulatory efforts in social security, health care, and education, it is natural to take stock of our knowledge of the politics of market design. Creating Competitive Markets contains a rich collection of case studies, all of which shed light on the promise and pitfalls of market-oriented reforms. The book is a fascinating collection of narratives that can serve as the foundation for courses on regulation and the politics of institutional design. For policymakers, the book is a cautionary tale: Successful deregulation does not imply government retrenchment, but rather a careful redeployment of rules within a highly politicized environment. Deregulation, indeed, is an unfortunate misnomer.

In the book's introduction, Mark Landy and Martin Levin distinguish between macro and micro policymaking in the design of markets. Macro policies are not specific to any market, but they often provide the necessary conditions for sustaining competitive markets. In one of the early chapters, Jacob Hacker argues that one such macro policy is the government's provision of social welfare. In the United States, social welfare includes not just social security but also a massive system of government-subsidized private benefits, including tax breaks and government incentives for employer-supplied benefits. Hacker argues convincingly that policymakers have allowed this safety net to erode through “stealthy” strategies, including failing to update legislation or allowing policies to drift away from their original purpose. In the absence of an effective social safety net, workers and families may attempt to restrict the competitive markets that serve as the foundation for the country's vibrant economy. The concept of macro policy is also relevant for market design in specific industries of the economy. In an excellent chapter on banking regulation, Jonathan Macey argues that federal deposit insurance is the sine qua non of a stable banking sector. Like Hacker, Macey believes that the government should pool risks and serve as an insurance mechanism so that the underlying market can function effectively.

The book's chapters on “micro” policy—that is, the rules designed to address inadequacies in specific markets—are richly detailed, if uneven in their analyses. The markets discussed include airlines, electricity, education, and telecommunications, among others. A common theme emerges from these essays: The deregulation of markets frequently leads to the promulgation of more, not fewer, rules. This conclusion is not new; indeed, Steve Vogel—who contributes a brief chapter to the volume—made this point quite persuasively more than 10 years ago in a book on regulatory reform in the U.K. and Japan. Nevertheless, some of this volume's chapters add depth and nuance to this conclusion. In one of the most fascinating chapters, Alan Jacobs and Steven Teles discuss the case of pension privatization in Britain during the height of the Thatcher years. This regulatory reform effort backfired terribly as policymakers failed to address the potential for fraud and misinformation in the emerging market for “personal pensions.” The resulting “misselling” scandal, aside from embarrassing the Thatcher administration, led ironically to the passage of a welter of consumer protection rules. The authors argue that policymakers were initially blinded by their ideological commitment to market reform, and unprepared for the complexity of creating a private market for pensions.

Despite the rhetoric of politicians, deregulation is not above the fray of entrenched interest groups. Andrew Rich argues that the passage of the Telecommunications Act of 1996 represents nothing more than the triumph of “old politics,” as the powerful telephone companies used their clout in Washington to dilute the pro-competitive provisions of the legislation. John Cioffi tells a similar story about the passage of the Sarbanes-Oxley Act of 2002 in the wake of the Enron and Worldcom fiascos and the dot.com bust. Despite the fact that the country was in a state of financial crisis, Congress was unable (or unwilling) to enact what Cioffi's deems the linchpin of corporate governance reform: granting shareholders a meaningful role in nominating and electing directors to corporate boards.

It is easy to get depressed while reading this book. Legislative reforms in the name of “deregulation” have often been inadequate or misguided, and sometimes they have failed in spectacular fashion. The lone comparative chapter, by Eugene Bardach, includes a simple two-by-two table of reform efforts, with relative success or failure on one axis and relative stakes on the other. The quadrant corresponding with high stakes and failure is heavily populated with cases. That said, there is much hope in this book. The notion of market design, rather than deregulation, focuses policymakers' attention on the complex suite of rules that must accompany any attempt to foster competitive markets. When constructing those rules, policymakers and other stakeholders would be wise to glean the many lessons from the case studies in this book.