How to Reform Regulations

Griping about government regulations has become a staple of public conversation. Each of us has our favorite story of regulatory silliness. Mine is the $3.3 million it cost to provide a "protected habitat" for eight flies. Apparently they were covered by the Endangered Species Act. (Is there really a shortage of flies in the United States?)

Far more important is the fact that the regulatory burden has become a serious obstacle to achieving truly important objectives such as a growing economy, higher living standards, and a healthier society. Most efforts to reform government regulation have fizzled because of a fundamental lack of public support and understanding. Contrary to the popular impression, it is not a matter of choosing between a cleaner environment (or safer products) and "going easy" on business. That stereotype does not conform to reality.

In practice, much regulation does not work. Extended bureaucratic reviews of new pharmaceuticals prevent patients from having ready access to better lifesaving medicines. Onerous automobile regulations increase the price of new and more efficient cars and encourage people to hold on to their old gas-guzzlers longer. Byzantine workplace regulations force employers to keep job openings unfilled longer than they need to.

What can be done to improve government regulation? Candor requires us to acknowledge that there is no panacea that would instantly cure all the shortcomings. Our differences on specifics, however, should not obscure the broad agreement on fundamental objectives.

Prioritize risks

Regulations should focus on the most serious risks. Government cannot regulate everything and should not try to. Attempting to achieve perfection--such as zero risk or zero discharge--is not practical and discredits the entire effort. After all, in our personal lives, we normally accept some risks--otherwise it would take us forever to cross the street!

Promote competition

There often is great advantage in relying on competition in the marketplace to protect the consumer. No more than the alternative of regulation does competition work perfectly. But often the risk of substantial harm is less. For example, we do not hear much about the deregulation of interstate trucking. That is because it is working well. Deregulation has resulted in thirty thousand new businesses entering the trucking industry, creating a job increase of 30 percent.

Use incentives

But given the current organization of property rights, it is not feasible to eliminate environmental regulation. It does make sense to use economic incentives more widely. After all, people do not pollute because they enjoy messing up the environment, but because it often is cheaper or easier than not polluting. Reducing pollution should not be viewed as the negative task of punishing wrongdoers. Rather, the challenge should be positive: to change people's incentives so that they voluntarily modify their behavior.

Cap regulatory costs

It would also help if Congress would adopt a "regulatory budget" to limit the amount of compliance cost an agency can impose on the private sector. To stay within the regulatory budget, a federal department thinking of issuing an expensive new regulation would have to cut the burden of its current rules.

Cost-benefit analysis

For the existing array of command-and-control regulation, benefit/cost analysis can help to make sure that any given regulation does more good than harm. There is no advantage in selecting the most costly and disruptive ways to respond to public concerns. "Overregulation" is not an emotional term. It is the economist's shorthand for government rules for which the costs to the public are greater than the benefits.

Conclusion

All Americans want to achieve a cleaner environment, safer products, and healthier workplaces. It does us all a great disservice to characterize honest differences as a contest between "heartless greedy polluters" on the one hand and "environmental wacko eco-freaks" on the other. There is a substantial role for government in establishing the rules for a civil society. The serious issues really relate to figuring out which rules to set and how to enforce them.

Murray Weidenbaum is Chairman of the Center for the Study of American Business.