Reforming the 4,000 Pound Gorilla
- Wednesday, June 17, 1998
Americans spend approximately $710 billion to finance federal regulatory agencies and to comply with regulations. Passing regulations is an attractive method that makes legislators appear to be doing the public’s business. Policy-makers portray concern for various environmental, economic or social problems by handing off the authority to regulatory agencies, thus receiving two for the price of one. They give the appearance of addressing a problem without seeming to raise taxes. Such slight of hand policy-making has proven neither beneficial nor cost effective for government, businesses or citizens. Regulation was meant to reduce uncertainty, illegal activities and to help consumers and citizens make informed decisions. The result was supposed to save money and resources. In reality, the regulatory behemoth has proven to be expensive and comes nowhere near accomplishing the goals for which it was intended. Instead the regulatory beast serves to make life more difficult and the costs of its upkeep threaten the economic and social stability of the United States.
The Two-Ton Regulatory Gorilla
The answer to the question, "Where does a two- ton gorilla live?" is, anywhere it wants. Over a period of time, the two-ton gorilla we’ll call federal regulations, appears to have taken up permanent residence in every area of American life. However, America is not alone in housing a regulatory gorilla. It is recognized as a problem worldwide. New Zealand was once considered a regulatory nightmare. It has shifted from command and control-government regulation to a system which stresses unregulated competition. This has forced the economy of New Zealand to submit to free-market discipline. When the Commerce Act of 1986 was instituted, basic principles were put into operation to strengthen property rights. The act defined competition as the basic principle governing economic activity. As a result, New Zealand has achieved greater efficiency and faster economic gains than any other country that has undergone economic deregulation. New Zealand now ranks as one of the most open and free economies in the world, and its open market is proof that government regulation is not the way to achieve a healthy economy.
Presently, U.S. federal regulations do not deliver the results and benefits promised.
The cost monster may be located in three areas:
Budget costs—the costs of doing business for a federal agency.
Compliance costs—requiring individuals, communities or companies to comply with regulations.
Hidden costs and the indirect costs of regulation—lost benefits, loss of essential public services such as law enforcement, better education, and increased economic growth. A host of other problems and solutions might otherwise be addressed if the cost of federal regulations did not eat up limited resources.
Budget costs in 1997 were almost three times that of 1970 levels, even after adjusting for inflation. There was a significant decline during the Reagan administration, but a staggering jump during the Bush and Clinton administrations. Spending increased by approximately 50 percent between 1987, when Reagan was about to leave office, and 1997. The number of regulatory employees fell during Reagan’s stint but has increased by 9.8 percent since 1990. The Clinton administration’s "reinvention of government" has meant a thicker regulatory rule book and costly implementation. It has resulted in countless new people being hired to handle paperwork and oversee compliance.
It is in the area of cost-compliance that the most horrific burdens are found. Economist Thomas D. Hopkins of the Rochester Institute of Technology estimates that the American people and American businesses spend $668 billion to accommodate the federal regulatory gorilla. He projects that such costs could rise to $750 billion by the end of the century. The annual cost of complying with environmental regulations alone is $188 billion. Each individual in the U.S. would pay $7,000 per person in addition to their tax burden. The federal government’s own estimates indicate that environmental compliance will cost approximately a tenth of the national income. These costs fall on individuals and small businesses to a greater extent than on large corporations. However, in recent years Congress has cut small business some regulatory slack while large corporations are not being given the same consideration. These days it is politically correct for the regulatory gorilla to put the pressure on big business, in essence making it more difficult to operate in the U.S. while incurring huge compliance costs. As a consequence, government micromanagement is forcing more corporations overseas.
Taming the Gorilla
What can be done to accomplish the seemingly impossible feat of taming the regulatory beast?
Some possibilities are:
Give large businesses the same opportunity as small businesses to challenge agency findings on the impact of regulations. Regulatory costs should balance against the sacrifices necessary to protect human health and environment with the potential risks involved in the activity. For instance, in economic and human terms what did "saving" the spotted owl cost? What are the long-term costs regarding U.S. jobs and economic growth potential as the government goes after Microsoft, tobacco companies or other industries that appear to be easy targets?
Restore federalism by limiting the federal government to a carefully defined role in solving problems that are not the direct responsibility of individual states. Most states are capable of establishing and enforcing laws regarding environmental problems, health and public safety and that responsibility should be returned to them.
Congress should quickly pass laws which would require partial or total compensation whenever federal action reduces property value such as taking private property for a public use. In the area of governmental takings, the payment should be made by the offending agency, creating an internal incentive to restrict regulatory action to that which truly benefits the public.
Cost-benefit analysis should be required before any public decision-making, including the renewal of any existing programs. The tendency of regulatory agencies to use administrative tactics to get around the cost-benefit process, must be halted.
Finally, and most importantly, agencies, their practices and regulations need to be subject to periodic review. As technology improves and needs change, agencies and their rules may become obsolete and should be eliminated. This is a Herculean task which America puts off at its peril.
Taming the regulatory gorilla is going to require courage, determination and recognition of the need to change. It was Justice Antonin Scalia who said, "the enfeebling measures of modern law do not specifically deter regulation. What they deter is change, including change by dissolving the encrusted regulations of past decades." Unless the regulatory gorilla is brought under control, Americans will find the beast consuming more and more individual freedoms and resources.
Diane Alden and Molly Conklin are researchers with the Nevada Policy Research Institute. They can be contacted at info@npri.org.
