The news of the day seems to be about President Obama’s op-ed on regulatory reform at the Wall Street Journal:
For two centuries, America’s free market has not only been the source of dazzling ideas and path-breaking products, it has also been the greatest force for prosperity the world has ever known. That vibrant entrepreneurialism is the key to our continued global leadership and the success of our people.
But throughout our history, one of the reasons the free market has worked is that we have sought the proper balance. We have preserved freedom of commerce while applying those rules and regulations necessary to protect the public against threats to our health and safety and to safeguard people and businesses from abuse.
From child labor laws to the Clean Air Act to our most recent strictures against hidden fees and penalties by credit card companies, we have, from time to time, embraced common sense rules of the road that strengthen our country without unduly interfering with the pursuit of progress and the growth of our economy.
Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs. At other times, we have failed to meet our basic responsibility to protect the public interest, leading to disastrous consequences. Such was the case in the run-up to the financial crisis from which we are still recovering. There, a lack of proper oversight and transparency nearly led to the collapse of the financial markets and a full-scale Depression.
Over the past two years, the goal of my administration has been to strike the right balance. And today, I am signing an executive order that makes clear that this is the operating principle of our government.
This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.
While others have been most impressed (or alarmed or amused) by the equation of child labor laws with the Clean Air Act and credit card reform, I was left with a question. What would a regulatory regime suitable for the 21st century look like? How would it operate? I honestly have no idea.
The present Federal Register, the compendium of all proposed and operational federal regulations is upwards of 80,000 pages in length. The Occupational Safety and Health Administration (OSHA) standards alone run to tens of thousands of pages and in its 30 year history the 1,000 employee agency has produced only a dozen criminal convictions. It might be a good place to start. IIRC it’s impossible to comply with the OSHA standards—some of their requirements are in mutual contradiction.
Off hand if I were king I’d change the funding of regulatory enforcement towards user fees and the incentives of the regulators to reward richly based on results. As I’ve written here before I think that financial regulators in particular should be awarded a portion of the fines that are exacted.
What other features would characterize a regulatory regime for the 21st century?
The no-brainer would be better computer systems. This may only be a problem at the state level, but there are agencies that clearly have invested along the wrong technology path (BetaMax!) and don’t currently have the resources to start over, agencies where it’s not odd for e-mail to take 24 hours to appear, and agencies that can’t find their stored documents.
A second issue is that our regulatory system has become more layered. There are a lot of areas where the feds, state and locals have different regulatory precepts for similar activities. This has been a slow spread and it creates confusion and uncertainty. I think we need to decide primary roles and create stronger demarcations of authority.
A third issue would be time. Regulatory bodies charged with issuing licenses or permits should be under time limits. IIRC, an average clean air act permit for a new facility takes three-and-a-half years to be issued. That’s a strong drag on economic growth if you can’t build or be sure what you’ll be allowed to build until the next Presidential administration comes into office. Delegation of agency authority from the legislature should include the time limits for agency action, which would hopefully create incentives to make a simpler system.
Having been a federal contractor for several different departments it is my considered opinion that the federal government is incapable of specifing, designing, or implementing a successful computer system. I’ve posted on this subject a couple of times. Building Great Pyramids when what is necessary is an effective potting shed seems to be par for the course.
One thing that might be a pretty good idea is a sort of UCC for regulations.
Heh, re ibm and jepardy, computers might be almost good enough to read those osha rules and reduce them.
How about a regulatory Wiki?
The regs themselves would be un-rewritable obviously, but the user community — people in companies affected by the regs — would be able to search, to cross-reference, and to talk to each other and the regulators through comments and revisions.
A company that had figured out a way to comply with subsection 7734 -B would be able to offer some insight to a different company which in turn might have had problems with subsection C.
Sections which consistently generated problems would show up as very long strings of objections and suggestions. Those could then be identified and (one hopes) rectified by regulators.
I think part of the problem with the computer systems is that the jobs are let out to the lowest bidder. I don’t believe that’s how private business would do it.
PD:
My private industry computer horror story: major publisher, major book series (30 million sold) and they decide to re-release them. They go to find copies — they were all submitted electronically and obviously sent to the printer, etc.. in the same way.
Turned out there were no copies on computer. No hard copy, either. They had to go on e-Bay, buy a collector’s set and scan them in. Sometimes private industry ain’t too swift either.
Here’s what we do: appoint an outside panel to judge the computer system in one of those take it or leave it deals.
I’m amused at his attempt to portray himself as a small government reformer. Go ahead: tell us another one. But I am less amused at the idea of incentivizing government workers to collect fines. The prospect of corruption in that scheme is vast.
Dave,
A regulatory regime where regulators get a piece of the action is going to ensure that only companies with deep pockets get regulated – or over-regulated as the case may be.
On the topic of financial regulatory reform, I thought this was a very interesting analysis of some of the structural causes of the financial crisis.
More generally, I would like to see simpler, more coherent and understandable regulation. The tendency to define things down to the gnat’s ass in a one-size-fits-all structure only ends up making the lawyers happy.
Getting stupid, outdated regulations off the books should be a priority. NPR today had a summary of some of the most ridiculous tariffs we still have on the books even though the industries that lobbied for them are long gone. Pages and pages on shoes: different percentages depending on the composition of shoe, with regulators having to cut open sample shoes to ensure they meet a certain percentage of leather in order to avoid a higher tariff (as much as 37%!). Ridiculous.
We’re not going to get everyone to agree on the hot button issue du jour, so why don’t we eliminate some of the stuff everyone knows is dumb instead. I guess spending a week on a repeal bill that has no chance in the senate much less overriding a veto takes priority.
A modern approach to regulation would recognize that not all industries are the same. The financial sector is systemically important. If t fails, it can crash the whole economy. It should be more strictly regulated. Regulations should be blunt rather than detailed, with bright lines and clear consequences. Small businesses need much less regulation. When possible, they should be left to state and local regulators. For large businesses, we should at least try to avoid barrier to entry regulations. Perhaps the consumer protection panel could review new regulations with an eye to avoiding exclusionary regulations.
Steve
My experience has been very much the opposite—lots of jobs are directed bids. Lowest bidder might be the problem, however, I’m not so sure.
Here’s a case study that might be revealing. Follow-up is here.
I think the issue is more two-fold. First, the project management approach is inherently flawed. Second, government departments are far too likely to have homegrown experts. I’ve found this to be a problem with government at all levels.
Was reading Tom Holt’s very funny Blonde Bombshell yesterday. Chapter 30 is a short case study in attention span and education. Funny and on target*.
The best thing is that chapter is only 2 pages long. It’s possible a teen could read it all.
* – visualize archery competition
Yikes, as they say …. “wrong window.”