Modernizing Government Regulation

In its new report, Modernizing Government Regulation: The Need for Action, the Committee for Economic Development (a blue ribbon group of business and other private sector leaders) has plowed new ground in the effort to reduce the burden of government regulation.

Most previous studies of regulatory reform have focused on the Executive Branch writing better regulations. By contrast, the CED report emphasizes the need to revise the basic laws governing regulation. Those statutes are the true birth stage of regulation. The time of their enactment provides the key point of control over the entire regulatory process.

In view of the massive burdens of compliance, the CED concludes that the current regulatory system produces too few benefits at excessive cost. They conclude that a more efficient regulatory system could be more effective and less costly.

The report notes that defects in basic regulatory laws are the major shortcoming in the regulation system. Many statutes limit or prevent the regulatory agencies from even considering costs as they issue new regulations. Other laws do not allow the agencies to use economic analysis to evaluate regulatory benefits and burdens. Congress itself, in the crucial stage of writing regulatory statutes, does not use the modest degree of professional analysis that the agencies now routinely have available.

The CED report urges each congressional committee writing a regulatory statute to state the benefits expected from the regulations that will be issued and the costs associated with that effort before they report out a new regulatory statute. That sounds so basic we must wonder why it has not been done.

Of course, in order to carry this out, Congress will need a new flow of information. That is why the report urges Congress to set up a new nonpartisan regulatory analysis function. Such an office would provide committees and individual members with reliable data, including estimates of benefits and costs. In order to make good use of such information, Congress would have to eliminate provisions of existing laws that prevent or limit regulatory agencies from considering costs or comparing expected benefits with costs when designing regulations.

The CED also recommends that Congress incorporate into law the requirement for executive branch review of proposed regulations along the lines of the executive orders promulgated by President Reagan and his successors. The real deficiency, CED notes, is not in the different wording of the orders, but in the fact that none of them has the "teeth" that would be contained in a statute covering all regulatory activities in the executive branch. A related proposal is to require a detailed accounting of the costs imposed by the regulatory agencies. This information could form the basis for a regulatory budget.

This private sector report does not advocate wholesale elimination of public sector agencies, especially in the environment and other areas of social regulation. Rather, the idea is to improve the way these government units conduct the public's business. It is expected that raising the level of information provides a middle ground between those who wish to expand regulation uncritically and those who want to eliminate it entirely.

To support its recommendations, the CED developed four basic principles to guide regulatory reform.

• First, regulation is only warranted when markets do not work as well as regulation.

• Second, Congress and the agencies should articulate the costs and benefits of proposed regulations.

• Third, the power of market incentives should be enlisted in the pursuit of regulatory goals instead of command-and-control directives.

• Finally, delegations of authority by Congress should contain specific controls to ensure that the regulatory agencies do not act capriciously.

In a fundamental way, examining the advantages and disadvantages of government actions promotes the notion of checks and balances so basic to our constitutional system. Although both government and business bring important influences to bear on the public policy process, the contrast between government and business power is striking. The largest company cannot raise taxes or put a person in jail; the smallest unit of government can.

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