Excess regulation comes at a price

By Jim Barlow
Copyright 1998 Houston Chronicle
September 24, 1998

Nothing irritates business like government regulation.

Despite the alleged power of business in America to get what it wants, the regulations keep piling up because the majority of Americans support them.

Face it. Government regulation is often needed. The fact that the government is checking to make sure the airplane I'm flying has been properly maintained is comforting.

But as Murray Weidenbaum of the Center for the Study of American Business points out, "Even at its best, regulation is a blunt and imperfect tool. Far too often, it imposes costs that greatly outweigh the benefits achieved, often unnecessarily."

We've had great success in reforming some regulations - especially in the economic area, where the government set prices and entry into some industries.

Since the 1970s we've seen regulation replaced by competition in the airline, trucking and long-distance telephone businesses. The government no longer tells stockbrokers what commission they can charge their customers.

In every case, the end of economic regulation has cut costs and brought benefits. In the trucking industry, for example, thousands of new entrants have cut shippers' costs by billions of dollars a year. It's also brought dislocation. Some companies that had been protected by regulation found they could not compete.

But that's what the market system is all about - using competition to deliver the best service and price.

Social regulation growing

There has been no drop, however, of social regulation - such as safety, pollution and other such cross-industry regulation.

It's here that market solutions are harder to come by. There is no natural competition, for example, in traffic regulation. It takes traffic lights, stop signs and police officers writing tickets. But lower toll fees for bridges and roads at off-peak times might persuade businesses to change the hours they ship goods around town to save money and thus reduce congestion.

While a command system of pollution regulation - setting limits on how much is allowable - might be necessary, there's often a better way of controlling it.

Typical pollution laws set out in exacting and minuscule detail just how pollution must be controlled. Yet we've seen that emission fees or tradable permits to pollute wind up achieving the same or even better levels of pollution reductions. And it's done at a lower cost.

Few of us even consider the cost of government regulation. But it's considerable.

One study by Thomas Hopkins of the Center for the Study of American Business found complying just with federal regulations cost $ 677 billion in 1996. That's $ 3,000 for every person in this country. And the study forecasts, with increased regulation already on the books, that will rise to $ 721 billion in 2000.

Almost all that cost is piled on business. But it doesn't stay there. Businesses simply pass on those costs in their prices - just as they do for labor, energy or raw materials. Those who consume the goods or services pay for regulation.

Weighing costs and benefits

Still, that's no argument against regulation - as long as what's being regulated makes sense in both economic and human costs.

Generally, regulations follow the well-known engineering rule - the one where you spend 10 percent of the money to solve 90 percent of the problem and 90 percent to solve the remaining 10 percent.

That's certainly true with pollution regulations. Early pollution controls did a wonderful job of cleaning up air and water at relatively low cost. Now as we chase down the final 10 percent, the Environmental Protection Agency's own figures show that between 1990 and 1995 only 21 of its 61 regulations delivered more benefits than they cost.

But what does cost-benefit regulations mean when we're talking about human lives?

Well, consider this. Current narrow tolerance standards on pesticide residues for fresh fruits and vegetables push up their cost beyond the means of low-income people. Yet a diet rich in fruits and vegetables can reduce cancer. The low tolerance levels may inadvertently be pushing up cancer rates.

The bottom line is we should treat regulation like any other endeavor. We should make decisions based upon reason, logic and - where appropriate - sound science.

Unfortunately many of those regulatory decisions are driven by hysteria, hype and the cry of the loudest voice. Fortunately, thinking with our regulatory gut instead of our head hasn't ruined us. But it sure has made life more difficult.


NOTES: To voice comments, telephone 713-220-2000 and dial in code 1000. Send e-mail to jim.barlow@chron.com.

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