Some business leaders believe that government regulation is rigid, unthinking and inhibits economic growth. Some advocates of government regulation believe that these business leaders are blinded by ideology to the benefits of regulation. Both sides are right, but miss the point. In a complex world with growing numbers of interactions between business and their supply chains and businesses and consumers, the potential for danger and malfeasance continues to grow. When regulation fails, our litigious society can simply resort to civil suits as a method of regulating behavior, a method that is as blunt as it is expensive. Well thought out rules, intelligently applied and judiciously enforced, could provide business with a clear guide to the rules of the road. No rules provide an invitation to anarchy, danger and declining economic confidence. We have gotten used to regulation and anti-regulation as a set of on and off switches governed by “liberal” and “conservative” ideologies. We should be thinking about regulation as a way of ensuring our economic activity can proceed with the least possible amount of unanticipated negative impacts. We don’t need more regulation or less regulation, but more effective regulation.
The Trump Administration has begun to reduce regulation; the president has set a quota for cutting regulations every time someone wants to add one. In a recent New York Times piece on business attitudes toward regulation, Binyamin Appelbaum and Jim Tankersley observed that:
“There is little historical evidence tying regulation levels to growth. Regulatory proponents say, in fact, that those rules can have positive economic effects in the long run, saving companies from violations that could cost them both financially and reputationally…But in the administration and across the business community, there is a perception that years of increased environmental, financial and other regulatory oversight by the Obama administration dampened investment and job creation — and that Mr. Trump’s more hands-off approach has unleashed the “animal spirits” of companies that had hoarded cash after the recession of 2008.”
These macho-management concepts of “animal spirits” are as ridiculous as they are widely held. There is little actual evidence that fear of regulation is a major component of business decision making. No one likes being told what to do, but stable and predictable rules create the level playing field required for investment and fair competition. Still, the anti-regulatory folks have a point. Regulation is often rigid, unintelligently applied, and slow to change even as conditions change. It can lead to dysfunctional behaviors by business that benefit no one. State and local governments are also regulated by the federal government and they too can find federal rules mind-numbing and counter-productive. But the problem is not the idea of regulation; it is the effectiveness and efficiency of regulation.
The analogy I would draw is one pointed out by David Osborne and Ted Gaebler in their 1993 book, Reinventing Government. Osborne and Gaebler were responding to decades of anti-government ideology starting with Barry Goldwater’s presidential campaign in 1964 and culminating in Ronald Reagan’s election in 1980. Reagan famously declared that government not only couldn’t solve society’s problems, it was the main cause of society’s problems. Reinventing Government argued that government had a key role to play in national life but that inadequate government management resulted in ineffective and inefficient government programs. The answer was not to reduce government, but improve it. Bill Clinton appointed Al Gore to chair a National Performance Review in an effort to take the ideas in Reinventing Government and apply them to the federal government. My own view is that these ideas had little impact on the federal government, but had a much bigger impact on state and local governments–especially local. Local governments deliver most of the visible services that the public sees and the pressure to improve performance is unrelenting. The result has been decades of improved service, in part based on the ideas of Osborne and Gaebler.
There has been no similar attempt to reinvent regulation. It remains dominated by formal legal thinking and is one of the least creative and least innovative functions performed by the federal government. Improving regulation requires that the federal government utilize some of the enhancements that modern management has brought to other production functions. Regulators must increase their use of: 1. strategic thinking; 2. communications and information technology; and 3. marketing (especially the use of social media). Regulators need to do a better job of understanding the views and experiences of stakeholders–the regulated community, advocates of regulation and the broad public. On strategy, I’ve been pushing for regulatory strategy for decades, and in 2005 co-authored a book with my colleagues Sheldon Kamieniecki and Matthew Cahn entitled Strategic Planning in Environmental Regulation. We argued that regulation was too often defined as command and control standards and enforcement, and instead government should consider a wider range of methods to influence private behavior to meet public needs. Tax incentives, education and a wide range of coercive and non-coercive methods are available to influence behavior and, in this day of endless information and inexpensive communication, regulation can be individually tailored to maximize benefits while minimizing costs. The web, drones, social media, sensors, automation, computer controls, focus groups and social psychology can be brought into a world still characterized by random inspections, paper documents, lawsuits, threats, counter-threats, conflict and snail mail.
Unfortunately, since we are stuck in a useless debate between pro and anti-regulation, we miss the opportunity to improve regulation. Regulatory agencies like EPA have been attacked and cut for decades. The conservative strategy of “starving the (governmental) beast” has ensured that there are no resources available to improve regulation and update it for the 21st century. There may have been some support for additional regulation during the Obama years, but there was no discussion of reinventing regulation and figuring out a way to create a more agile and flexible way to influence private behavior to serve the public’s interest. We need to reengineer regulation, we do not need to increase it nor destroy it.
It’s time to turn the page and reinvent regulation. Regulation is not cost free, but pollution, poisoned drugs and food, unsafe work sites, and unfair labor practices also bring high costs. There are very few advocates for poisoned food and dangerous work sites. The issue is who pays for the cost of compliance and how and when those costs are charged. This silliness of cutting the number of rules, or repairing the damaged psyches of our “discouraged” business leaders, really needs to be discarded. We need to grow up and figure out how to grow economic activity in ways that preserve the planet, protect workers, promote fairness and protect our children’s future.
The world is not the simple uncrowded place our founders knew in 1776. Technology has transformed economic life and freed us from a great deal of drudgery and pain. But it has introduced dangers unimaginable two and a half centuries ago. Terror, mass financial fraud and manipulation, nuclear war, biological contamination, toxic chemicals, invasive species, climate change and species extinction are real and present dangers. We need to police ourselves and make sure that the rules of correct behavior are clear, fair, well understood and creatively applied. Our goal should be to maximize individual freedom but to balance that freedom against the needs of our community. The goal of regulation is not to show who’s in charge or to declare winners and losers; it’s to manage the complex interactions that provide us with the benefits of our technological age, with the least possible cost. Regulation is simply too important to leave to the ideologues.