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Regulated to death.

"I am going to stop handing down mandates to you and regulating you to death," Bill Clinton told business during his campaign. Indeed, his campaign speeches and manifesto, "Putting People First," even offered a few specifics: 1) reforming antitrust laws and other regulatory barriers that prevent U.S. companies from working together on research and development projects; 2) reducing the paperwork burden on small businesses by developing regulatory "short forms," similar to those used by many income tax payers; and 3) enforcing the Regulatory Flexibility Act, which is intended to give businesses more flexibility in meeting certain federal standards.

These are good ideas, as are some of the administration's proposals to help the banking industry get back into the business of making loans. But even if the White House decides to follow through on all of these campaign promises, there is little net benefit to the economy when the government reduces the burden in one area while increasing it in another. Unfortunately, the administration seems to be moving in that direction.

Even conceding (as it pains me to do) that some regulations produce social, if not economic, benefits to society, Washington must recognize that the costs have been staggering. A succession of studies by The Heritage Foundation, the Center for the Study of American Business, and other research organizations estimates that regulations now burden the economy to the tune of $810 billion to $1.7 trillion per year. That comes to between $8,400 and $17,100 a year per household. In other words, if we could eliminate the regulations today, tomorrow every U.S. family could buy a new car or make a down payment on a new home.

There appear to be few prospects for relief. Now being implemented are two of the most burdensome pieces of legislation passed by the Democrat-dominated Congress: the Americans with Disabilities Act (ADA) and the 1990 Clean Air Act amendments. Economist Paul Portney of Resources for the Future, a Washington-based environmental group, estimates that new Clean Air Act requirements will cost business an extra $29 billion to $36 billion a year, in addition to the more than $100 billion already spent annually on pollution controls.

What's in store under ADA? All airlines will be required to modify aisle seats on one side so people with wheelchairs can get in and out. The problem is that only 1 of every 25 flights has a passenger who uses a wheelchair. The modifications are expected to cost the financially ailing industry some $40 million, while those for office buildings and hospitals alone may cost $65 billion. So far, however, the president has shown no inclination to take a reasonable second look at the law.

Nor does Mr. Clinton appear anxious to consider the costs of the Civil Rights Act of 1991, the "non-quota quota bill." Under the law, employers may have to prove they haven't discriminated in their hiring practices if their work forces aren't near-mirror images of the communities in which they operate. Worse than just bearing the costs of defending against discrimination charges is the legal presumption of "guilty unless proven innocent." Even businesses that give in and use explicit quotas will risk being sued for deliberate discrimination.

Other measures that may slow down the economy include the Pollution Prevention Act of 1990, the Nutrition Labeling and Education Act of 1990, and the new Family and Medical Leave Act.

William G. Laffer III, The Heritage Foundation's McKenna Fellow in Business and Regulatory Affairs, estimates that without this regulatory "tax" burden, which has grown over the past 20 years, the U.S. economy would be 7 percent to nearly 20 percent larger today--somewhere between $450 billion and $1.1 trillion larger.

What should worry the Clinton administration most is the fact that regulation takes its biggest toll on small business--the sector responsible for creating most of the new jobs in the economy.

These are also the firms likely to be hurt the most by the newest wave of regulation, including the Family Leave Act and the Disabilities Act. Large corporations generally can finesse the costs of complying with new regulations much more easily than smaller companies, because the big companies already have large legal departments, sophisticated personnel policies, long-term construction and maintenance budgets. Newer businesses, on the other hand, often cannot afford the costs of processing additional paperwork and paying more in legal and accounting fees.

The extent to which overregulation destroys jobs doesn't show up in the usual battery of economic statistics, because most of the time regulation produces slower job growth, rather than visible losses in existing jobs. Nonetheless, Laffer says even by a fairly conservative estimate there are at least 3 million fewer jobs in the economy now than there would have been had the growth of regulation over the past 20 years been slower and regulations more efficiently designed. This means that instead of 9 million unemployed, the number would be closer to 6 million.

What should President Clinton do? First, he should take a hard look at the record of the past decade. During the 1980s, when Ronald Reagan cut more than 33,000 pages from the Federal Register (in which all regulations are published) and slashed the number of federal employees who issue and enforce regulations by more than 17,000, America's job-creating capacity became the envy of the world. The Reagan expansion added 19 million new jobs to the economy.

By contrast, the regulatory burden increased dramatically during the first three years of the Bush presidency. By the time he declared a moratorium on new regulations, the number of pages in the Federal Register had risen by more than 14,000, and the number of regulatory bureaucrats had increased to an all-time high of 125,000. Not surprisingly, the American job-generating machine ground to a halt, losing nearly 2 million jobs.

To be sure, many factors other than regulation affect employment levels. But Laffer's studies show that the growth and decline of private-sector jobs over the past decade track closely with the cost of regulations.

Clinton's challenge, therefore, is this: Regardless of what he thinks of regulation as a philosophical matter, he must find ways to reduce the regulatory burden if he expects to see prolonged economic growth. He has indicated by some of his statements that he recognizes the problem. Whether he is prepared to do something about it is another matter.

Before imposing any new regulations, the Clinton administration should conduct a comprehensive review of the economic impact of existing regulations. Procedures should be developed for streamlining or eliminating the most burdensome, unnecessary, and costly regulations.

One noteworthy idea for bringing sanity to the process would be to establish an official "regulatory budget" within each agency. If the agency finds it necessary to add new regulations, it would be required to repeal or modify some other regulation(s) so the overall cost does not increase.

We all must recognize that most of the regulations Washington has piled on business are here to stay. And I think we safely can predict that under President Clinton the pile will grow. That doesn't mean, however, that we have to settle for the status quo. Reasonable reforms that reduce the economic burden are surely in order. If the president meant what he said during the campaign, he would order a review of all existing regulations--and it would begin yesterday!

Note: The Heritage Foundation has established a National Advisory Council on Regulatory Reform, co-chaired by former Deputy Treasury Secretary John Robson and former Federal Trade Commission Chairman Daniel Oliver. For information on the advisory council's activities, readers of Chief Executive can contact Oliver at 214 Massachusetts Ave., N.E., Washington, DC 20002.

Edwin J. Feulner, Ph.D., is president of The Heritage Foundation, a Washington, DC-based public policy research institution. He also serves on the boards of several other foundations and research institutes. Dr. Feulner is the author of "Conservatives Stalk the House."
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Title Annotation:Above the Beltway; government regulation of business
Author:Feulner, Edwin J.
Publication:Chief Executive (U.S.)
Date:May 1, 1993
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