Regulation, More or Less?

__A Survey of Recent Articles__

It was a landmark event of sorts last year urgent need for regulatory reform, and issued when specialists from think tanks on three a joint pamphlet making their case. distinct points on the ideological spectrum "The problem is not simply that current found themselves in agreement on the expenditures mandated by regulation arelarge—on the order of $200 billion annually for environmental, health, and safety rules alone," said the specialists from the Brookings Institution, Resources for the Future, and the American Enterprise Institute (AEI), in excerpts published by American Enterprise (Nov.–Dec. 1997). It is, rather, that much of that spending is ineffective. "More intelligent policies could achieve the same social goals at much less cost, or more ambitious goals at the same cost." For instance, a gas tax might have been a much more efficient way to reduce fuel consumption than imposing fuel-economy standards on Detroit.

Robert E. Litan, director of economic studies at Brookings, Robert W. Hahn, a resident scholar at AEI, and their colleagues said they were not for or against regulation per se, but believe that specific regulations should be judged by their individual costs and benefits. They also complained that Congress frequently does not let regulatory agencies consider costs when promulgating new rules. It also frequently "specifies the technical means for achieving regulatory goals instead of letting consumers and firms decide" how best to meet them efficiently.

In a special issue of Brookings Review (Winter 1998) on regulatory reform, guest editor Pietro S. Nivola notes that estimated regulatory costs declined in constant dollars between 1977 and 1988, "as the economy realized tens of billions in savings from deregulation of the transportation and energy industries and from the Reagan administration’s concerted efforts to curb costly new regulations." Since then, however, costs have been on the rise. "A profusion of new rules and legal liabilities increasingly bore down on business decisions about products, payrolls, and personnel practices," writes Nivola, a Senior Fellow in the Brookings Governmental Studies Program. "By the mid-1990s these costs were approaching $700 billion annually—a sum greater than the entire national output of Canada." Much of this regulatory activity, Nivola says, is political "pork" in a new guise, an "offbudget spoils system" devised by Washington politicians to serve favored interests in an era of fiscal constraints. "For instance," he writes, "rules that have encouraged the use of ethanol (a fuel made from corn) are a kind of pork for corn farmers." At costs of up to "billions of dollars per cancer prevented," the Superfund toxic waste cleanup program has produced one clear winner: lawyers.

In their joint statement, Hahn, Litan, and their colleagues urged, among other things, that Congress give back to the states responsibility for overseeing local matters such as waste disposal and safe drinking water. But wouldn’t the states "race to the bottom" as they competed to attract businesses? Mary Graham, a Fellow at Harvard University’s Kennedy School of Government, says in Brookings Review that "overwhelming" evidence shows that business decisions on location or expansion are seldom influenced by state environmental programs. Some states, she points out, "lead in economic growth and environmental protection," while other, often relatively poor states "lag behind in both." Since the 1970s, state politics and public attitudes have become much more sensitive to ecological concerns. The federal government, she suggests, should set clear national goals, give states flexibility in meeting them, and concentrate its oversight "wherever states are weakest." The nation’s rapidly changing financial markets are also ripe for a "more flexible approach," argues another Brookings Review contributor, Steven M. H. Wallman, a Senior Fellow at the think tank and a former commissioner at the Securities and Exchange Commission (SEC). Regulation needs to become "more ‘goal-oriented,’ with regulators articulating broad goals and allowing market participants to determine how best to satisfy them." To general satisfaction, the SEC, for example, has done just that in allowing firms to make obligatory communications with investors electronically. But more far-reaching reform is needed, Wallman says. Traditionally, financial institutions have been regulated by agencies tailored to their particular kinds of business: the SEC oversees securities firms, banking regulators deal with banks. But these institutions are diversifying, and banks, for example, are taking on some functions of brokerage houses, and vice versa. Eventually, Wallman believes, the government will need to reinvent its regulatory institutions.

Not all the Brookings Review scholars champion drastic regulation overhauls. Thomas E. Mann, director of the Brookings governmental studies program, comes out against a congressional proposal to deregulate campaign finance while mandating disclosure of contributions to candidates for federal office. The proposal, he says, "is less a solution to the clear shortcomings of the existing regulatory model than a fanciful exercise in wishing those problems out of existence." He favors "muddling through the complexity of the present system."

And there still are some problems that cry out for more government regulation, contends Nurith C. Aizenman, formerly an editor at the Washington Monthly (Oct. 1997) and now with the New Republic. She warns, in particular, of "the recent massive increase in the volume of hazardous materials streaming across our nation’s highways and railroads." Rail transport of "hazmats" jumped 27 percent between 1990 and 1995. In 1995 alone, there were 12,712 incidents involving hazardous materials released from trucks and 1,330 such incidents involving railcars.

Overwork is a major cause of accidents. In 1994, a propane truck crashed into the column of an overpass near White Plains, New York, igniting the propane and propelling the gas’s container through the air onto a nearby house, which was quickly engulfed in flames. The driver died and 23 others were injured. What caused the accident? The driver dozed off at the wheel. He had been driving continuously for 35 hours.

Though truckers can be legally required to work only 10 hours, they are paid by the mile, not by the hour, Aizenman says, and "trucking companies routinely—and knowingly—put them on schedules that make a mockery of the law." When the Federal Highway Administration "bothers to conduct [safety] inspections," she writes, "it tends to favor the velvet-fist-in-the-velvet glove approach." The Federal Railroad Administration, which oversees rail safety, is hardly more rigorous. Much more regulation is needed, Aizenman unfashionably concludes.