One of my subscribers recently wrote, "I think people in general need restrictions and boundaries set, and requirements imposed, or some will act only in their self-interest." She also wrote: "The free market allows people full rein with their selfishness and destruction and discrimination. Limiting these activities is not putting barriers in their way, it is just watching out for the good of the whole, and future generations."
I believe she is right, that we do need regulations, but I ask: Who will do the regulating? It is not only the free market that allows people full rein with their selfishness. A government is also selfish. Does anyone think the present government or any administration in the past has ever watched out for the good of the whole, and future generations, unless it were in its own political interest to do so? I believe on the contrary that governments value their own power highly, and will do whatever it takes to hold on to it. So do multinational corporations. So do labor unions. So do most people, even Quakers.
I believe that our society is over-regulated. Regulations initiated with all good intent for safety, environmental protection, and equal opportunity have gone beyond reasonable limits, to invade the decision-making privileges of individuals and companies. Wanting power, regulatory agencies have extended themselves beyond common sense.
They are supplanting unions, which used to negotiate conditions of employment. They mandate that in certain ways we all behave alike. For example, the Family and Medical Leave Act of 1993 requires employers to give twelve weeks of unpaid leave to new parents. That sounds good, but its pernicious effect is to dissuade employers from hiring women younger than menopause, or even to drive out of business employers who might not afford the cost.
We do well to require unpolluted air and water and machinery that will not kill or maim, but to extend regulations much beyond the requisites of safety and environmental protection not only usurps personal autonomy and individual agreements, but it drives firms out of business and causes unemployment. There are issues we understand incompletely, and in these issues we often choose ineffective responses and try to enforce them on others.
The best estimate of the regulatory burden, compiled by Mark Crain of George Mason University and Thomas Hopkins of the Rochester Institute of Technology, puts the cost of complying with federal rules [in the United States] at $843 billion in 2000, compared with $1.8 trillion in total federal spending. An earlier study by Hopkins found that "... in 1995 federal regulation cost the American household $7000 (more than the average income-tax bill, which was $6,000 per household in 1996)." For comparison, federal spending per household in 1995 was roughly $17,000. [This paragraph was updated with more recent figures in January 2005. ed.]
A few regulations are outrageous, such as the bank in Kansas City that "was ordered to put a Braille keypad on a drive-through cash machine" presumably for blind customers who drive automobiles, and the "man who cleared 7,000 tires from his property [who] was prosecuted for destroying a wetland; the tires had trapped water from a nearby stream, creating several pools which the regulators deemed worthy of protection." The Economist (7/27/96) goes on: "Multiple levels of authority produce endless reels of red tape, from the state, county and city governments to semi-autonomous local agencies charged with controlling pollution and other evils, produce rules that overlap, replicate, and on occasion, contradict one another."
The EEOC has sued United Parcel Service for refusing to hire one-eyed truck drivers, though of course UPS would be responsible in case of accident. An example of contradictory rules: "The floors at the sausage plant in Baltimore were wet and possibly slippery, and the worker safety inspector from OSHA did not hesitate to enforce the law. [But] Agriculture Department rules, for obvious sanitary reasons, require meatpackers to keep the floors hosed down." (The six preceding paragraphs are adapted from my book, The Moral Economy, Univ of Michigan 1998).
We require the poor to live like the rich (and to pay for it).
If all the building regulations in the City of New York were enforced, thousands of people, now crowding apartments illegally, would be forced into the streets (Wall Street Journal, 3/13/99).
An architect friend of mine wanted to design a truly low-cost house. He called for a light in the center hallway, with a string down to the ground floor, so it could be turned on and off on any floor. The housing authorities forced him to put in a three-way switch, at greater expense.
A farm in Longmont. Colorado, where Robin and I used to buy sweet corn, hired Mexican laborers, providing them with housing far better than they had enjoyed back home. But the houses weren't up to the Longmont code, so the Mexicans were dispossessed. Unable to afford more expensive housing and without labor, the farm closed down.
Workers encamped conveniently on growers' farms in Washington State were forced out by the Occupational Safety and Health Administration (OSHA) in 1999, with no alternative places to live. They had to sleep in the forest (Economist, 7/3/99).
The regulatory agency can demand excessively, because business will pay the cost. Business costs are passed on to consumers as increased prices.
Stephen Breyer, in a 1993 book published by Harvard, told of a Superfund case in which the Environmental Protection Agency (EPA) tried to compel a private party to spend $9.3 million on additional cleanup of a waste site, so that children could eat its dirt without ill effect for 245 days. In fact, there were no children in the neighborhood, nor any likelihood of residential development.
"In the early 1980s, on the advice of government scientists, Congress required cities and states to spend almost $20 billion to remove asbestos from public buildings. The scientists then concluded that the exercise had increased the danger to the public by allowing the asbestos fibres to fly into the air" (Economist, 8/2/97).
Santa Monica officials considered requiring new private houses, and those being remodeled, to have wheelchair access, whether the owners needed it or not (New York Times, 12/03/01).
In a 1996 act, the Bell companies (offshoots of AT&T) were not allowed to enter the long-distance market. The regulation was overturned by a Federal judge in 1998. "By specifically barring the the Bells, ... the judge said, Congress had [acted] in violation of the Constitution" (New York Times, 1/1/98).
The requirement that drugs shall be outlawed even for those patients that need them as painkillers has caused suffering to countless individuals. One sufferer could get relief only by checking himself into an emergency room at great cost, when he would have been physically able to inject the painkiller himself (New York Times, 1/16/99).
The growing of hemp (a non-intoxicating look-alike cousin of marijuana) was banned in the United States as part of its war on drugs, but it is allowed in Canada (New York Times, 4/1/99).
Many farmers have been required to join cooperatives to advertise common products (wheat, pork, etc.). A large number of them have refused, saying they will not join such "cooperatives" (New York Times, 6/11/01).
"A girl in Ohio was suspended from school for 'drug dealing,' when she gave a tablet of Midol a mild remedy for menstrual pain to a friend . . . In North Carolina a six-year-old was suspended for sexual harassment for kissing a classmate on the cheek" (Economist, 10/12/96).
Business decisions constantly require risk-taking.
In 1991 the Food and Drug Administration announced its intention to ban blood donations from anyone who had spent six months or more in the United Kingdom since 1980. Reason: blood recipients might contract Creutzfeldt-Jakob disease (CJD). The annual incidence of CJD is one in a million, less than the chance of being struck by lightning. By ruling them out, "the FDA will further limit the supply of whole blood, which is growing tighter day by day" (Wall Street Journal, 8/25/99).
In 2000, the FDA considered forbidding Americans to eat raw cheese, on grounds of a possible health hazard (Wall Street Journal, 7/21/00).
In 2000, OSHA required "employers to educate workers on musculoskeletal disorders, a company might have to change the height of an assembly line to prevent workers from constantly reaching, or provide new chairs and keyboards for workers who type most of the day" (New York Times, 11/18/00).
The proposals are all worthwhile, but I believe they should be undertaken by unions bargaining with employers, instead of by what some call a "nanny state."
Fickleness of regulation
Fickle regulations (that change often) are all the more costly.
One company, selling high-tech screws, rods, and other implants used by surgeons faced changed labeling requirements 16 times from1990 to 1996. Each change cost the company $50,000 (Wall Street Journal, 7/16/96).
Changing US policies have contributed to many "stranded costs" of utilities (invested funds predicated on previous regulations that are no longer applicable). A 1987 law required utilities to buy above-cost energy from independent power generators. Then the rules changed again, saddling utilities with an excessive price tag caused by their contracts (Wall Street Journal, 12/26/97).
The Bush government reversed many of the regulations of the Clinton administration on banks, hospitals, oil companies, and telecommunications (Wall Street Journal, 8/3/01) Each change carried a cost.
My reader was correct: some regulation is needed. For example, the environment must be preserved. Wives and children must not be abused. But how do we distinguish between good and bad regulation? Mostly by common sense. However, regulatory boards seem not to be ruled by common sense. Instead, they extend their powers into new situations, often beyond what Congress had intended. So I return to my original question: Who will do the regulating?
In TQE #48, I suggested sidewise accountability. The groups damaged by the reckless actions of corporations and others would be the ones to demand satisfaction, including changed practices. CPA firms would return to their original function, to verify the financial statements of clients, and to be sued if they are negligent or dishonest.
With sidewise accountability if we could ever get it organized each interested group would be represented by some organization, such as labor union, bankers' union, stockholders' union, etc. This organization would make contracts on behalf of its members and would be answerable to them, in a democratic system. The government's role would be confined to enforcing the law, in this case mainly the law of contracts ö in case one group charges a violation of contract. In this way, the responsibility for defining "good behavior" is placed on the persons or organizations concerned, and the responsibility of enforcing it belongs to the courts.
This is explained more completely in TQE 48 (see above for the link). In TQE #79, I lamented our tendency to place blame on others, and to rely on others to fend for us. Sidewise accountability is a way to overcome those tendencies. And No, the free market is not a loose cannon. It has rules enforced by courts.
Sidewise accountability also accepts that regulation is necessary, but it answers the question: Who will do the regulating?
Sincerely your friend,
What are the historical causes of government assuming regulatory powers? Is it because there is a power void from the private sector (the organizations you've described aren't there) that presents the opportunity for government to overstep? And what are the obstacles to the formation of these organizations? In recent years, stockholders have become more active in filing class action suits against perceived fraudulent practices -- Is this the beginning of what you're describing?
Ann Dixon, Boulder (CO) Meeting of Friends.
From time immemorial, governments (tribal councils, kings, emperors, shoguns, etc.) have held regulatory powers over citizens. It was only in the Age of Enlightenment in western Europe (from the sixteenth century on) that these powers began to erode. But they have eroded neither completely nor universally, and beginning toward the end of the nineteenth century they resurged. I don't know the full reasons for that, but I believe the new affluence of the West may have encouraged citizens to lay their troubles on the government because they were rich enough to hire servants, and the government became their servant. (But that is only a shot in the dark.) And yes, class action suits are a beginning step toward sidewise accountability. Jack
Good collection of regulatory horror-stories.
Steve Williams, Bethesda (MD) Friends Meeting.
It seems to me that we Americans already work way too many hours a week and, as a result, our 'sideways' institutions that once regulated behavior are extremely weak. This includes religions which once, like hospitals and schools, and childrens' programs, depended on volunteers to help keep them going. Now, volunteers (read women) have joined the workforce so we must pay people to take care of our elderly, our young and our sick. Soon we'll need for-profit religions. RMOs will be Religious Maintenance Organizations to make sure our spiritual needs are met.
Signe Wilkinson, Chestnut Hill (PA) Friends Meeting.
Response by Jack:
Thanks for addressing the regulatory complex in TQE #80. This issue has been a burr under my saddle for many years. I'm currently clerking our Meeting's remodeling committee. We have been ready to go with remodeling plans since April, but due to the vast and complex web of planning and building regulations we must adhere to, we will not be able even to go to the Planning Commission with our request for minor alterations in our Conditional Use Permit until mid-October. The city building department looms after that. Perhaps we can at least avoid the problem we suffered last time around: due to the way the building department interpreted ADA regulations, our handicapped-accessible restroom was required to be equipped with a pocket door latched by a bizarre handle that regularly traps Friends inside. I'm in favor of accessibility, but the test should be whether or not the restroom is accessible, not whether or not it meets the minutiæ of the ADA. Having a performance-based standard makes much sense. Regulating in labyrinthine detail precisely how that standard must be met does not.
Bill Ashworth, South Mountain Meeting, Ashland (OR)
When the political case for regulation is based on poorly considered premises, subsequent implementation is apt to have unintended consequences. An old but still relevant example is OSHA (Occupational Safety an Health Act). First, note that "safety" and "health" are different issues.
Concerning safety, there are market-based remedies. The victim of negligence can sue. Insurers who have an economic interest in reducing claims will raise premiums for firms that fail to correct problems. For these reasons the industrial accident rate had been falling for decades before OSHA.
By contrast, health is trickier. A cancer may not develop for many years after exposure to a workplace carcinogen, and there are usually scores of confounding variables smoking, diet, exposure at other workplaces, etc. So there are few, if any, market-based remedies. Causation can be difficult to prove in court, and the offending firm may have gone out of business. So OSHA was sold politically because people were afraid of cancer. But what did OSHA (the Administration) actually do? Because the agency needed to show results and because addressing health was a difficult, long-term proposition, the agency immediately began producing mountains of safety rules on ladders, width of catwalks, quality of protection gear, position of exit signs, etc. Many small firms went out of business because of the costs of compliance. To be sure, accident rates fell, but they had been falling anyway. But health problems continued to be neglected. As a former employee of the U.S. Environmental Protection Agency (EPA), I could multiply examples.
The recent momentum toward a market in "pollution rights" is a positive example of a superior approach to most water-quality and air-quality regulation, because it allows individual firms to work out solutions that fit their needs within a framework of public policy goals. There are areas where regulation is essential. But Friends should ask themselves, first, what problem are we really trying to solve? And second, is there a market-based remedy that we should try first?
Fred Baldwin, Carlisle (PA) Meeting.
Those who introduce a regulation to solve a particular problem are well-intentioned. But their incentive in determining the impact of their decision to regulate is to measure those outcomes that correspond to their desired effect. Thus regulators never (or seldom at least) measure the unintended consequences of their rules, and as a result we get increasing regulation. And the increasing regulation is generally determined to have achieved adequate (or at least partial) success in reaching the underlying goals.
Since we have been introducing new regulations at an increasing pace over the last 100 years, and these rules are understood to have achieved their goals to an acceptable degree, why is it that the underlying problems still exist? The answer is that regulation generally undoes as much through unintended consequence as it does in achieving the desired outcomes, so the net impact is zero.
Christopher Viavant, Salt Lake City (UT) Meeting.
I agree with your economic theory, but often I get stuck when I try to look at how this works in my every day life. What does "over-regulation" mean when my local cable company jacks up prices and there is no direct competition to turn to? Of course if you define the market broadly enough, the internet, direct TV, or even a book are substitutes. It seems to me these nuances are where it gets muddy, that the devil is in the details. Should the government regulate cable prices? If so, to what degree? When does regulation become over-regulation? It does not suffice to listen to the cable companies, because they will always say they are over-regulated and will lobby for their self-interest, as they should. (Adam Smith never had a kind thing to say about business people.) Politicians can't get enough regulation. How are we to decide?
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