I. Introduction
Two
perceptions join the debate over regulation in the United States with the debate over our
declining productivity and international competitiveness. First, it is widely believed that the growth of regulation has seriously
hindered domestic firms in competing with foreign rivals. Casual evidence for this view is that the newer programs of health,
safety, and environmental regulation first began to impose heavy costs on American industry in the early 1970s, just when
our productivity growth began to decline sharply relative to that of other Western industrial economies. Second, it is also
widely believed that our major economic competitors, especially Japan and
West Germany, have been far more successful
than we have been in reconciling environmental (and other regulatory) goals with economic performance. This view is usually
supported by contrasting the highly formal, protracted, and adversarial style of business regulation in the United States
with the more informal, pragmatic, and consensual approach of other industrial democracies.
This paper analyzes these two views. At the outset, however, it must be said that the evidence on both points is fragmentary
and that we shall therefore be left to speculate as intelligently as we can. For this reason it will be useful to begin with
a discussion of some general propositions concerning regulation and economic competition in domestic and international markets.
II. Regulation, Productivity, and International Competitiveness
What is the general relationship between government regulation and the productivity of the economy? There is a standard
answer to this question among students of regulation which goes a long way toward illuminating the further issue of international
competitiveness. The answer is in two parts: (A) In theory, the very purpose of regulation is to increase productivity in
the sense of increasing the efficiency and hence total output of the economy. (B) In practice, however, regulation frequently—some
would say typically—operates to decrease productivity and competitiveness.
A. Regulation in Theory
The first part of this answer is straightforward, provided we understand that "in theory" is strictly normative: increasing
productivity is what economists say regulation should be about when they write their articles and textbooks, and it is what,
regulators say they are about when they hand down their decisions and give speeches and congressional testimony. Consider
the oldest form of regulation, the control of prices and profits of "natural monopolies" such as power and communications
utilities. Here the formal aim of regulation is precisely to make monopoly markets behave as if they were competitive—to
compress monopolists' prices down to their costs and thus to produce the higher output that is the natural result of
price rivalry in competitive markets. If the process works as advertised, its result is to extract greater social productivity
from the resources employed in serving monopoly markets.
Similar though less obvious economic rationales underlie the newer programs of health, safety, and environmental regulation
often described as "social regulation." Minimum safety standards for drugs, food additives, and other consumer products may
compensate for the inability of consumers to assess the quality of products that are esoteric and may present latent hazards.
In the absence of standards some consumers will decline to purchase such products at prices equal to their costs of production.
Minimum standards, in giving consumers an assurance of minimum product quality, may increase demand enough that the "regulated"
markets are larger and more efficient even at the higher prices occasioned by the standards. In the same fashion, workplace
safety and health standards may increase the efficiency of labor markets, thus decreasing total production costs in spite
of the added costs of complying with the standards.
Some degree of environmental regulation is also economically appropriate so long as markets in the use of air and water
are technically infeasible. Pollution controls, unlike workplace safety and health controls, add to firms' production costs
without yielding significant compensating benefits to the firms themselves; their unambiguous effect is therefore to raise
prices and reduce output in product markets, in the same manner as an outright tax on factors of production. At the same time,
however, pollution controls fulfill demands for cleaner air and water which would otherwise be ignored, and in principle they
should provide just the degree of cleanliness that would be purchased at the market price in competitive air and water markets.
Douglas Costle, the Administrator of the Environmental Protection Agency during the Carter Administration, often said that
his agency's function was simply to correct this sort of "market imperfection." If this is all EPA does, then it is increasing
productivity and the real total output of the United States
economy—taken comprehensively to include not just measured GNP but all things people value enough to be willing to purchase
at cost.
The reason for focusing on the normative aspect of regulation is to bring out the important point that regulation is
in principle compatible with—indeed supportive of—productivity and international competitiveness. Imagine that
all natural monopolies were regulated in the United States
strictly according to economic principle and were unregulated throughout the rest of the world. The result would be that monopoly
firms in the United States would produce
at higher levels of output and lower prices than their foreign counterparts.1 Of course the domestic and foreign
firms would riot be competing directly with each other in any world market. If they were competing they would not, by definition,
be true monopolies at all. But in each nation the monopoly industries—typically infrastructure industries such as transportation,
communications, and power distribution whose markets are wholly domestic—would be providing critical inputs into service,
manufacturing, and agricultural industries that were competing in world markets. Other things being equal, production
costs in these domestic industries would be lower than the costs of their foreign competitors; their world market shares would
be larger than if domestic monopolies were unregulated or if foreign monopolies were regulated.
By the same analysis, appropriate health and safety regulation in domestic markets would yield a cost advantage to
U.S. firms competing in international
markets. While domestic firms would incur costs in complying with such regulations, the costs would be more than offset by
compensating cost reductions and other benefits. In the case of labor markets, the costs of meeting workplace standards would
be repaid by such benefits as lower wage rates, more skilled and productive workers, and reduced workmens' compensation payments.
In the case of intermediate products, the costs of meeting quality standards would be repaid by such benefits as improved
quality and reliability and reduced product‑liability payments.
There may be a tendency, given the enormous costs of current regulatory programs concerned with safety and health,
to scoff at these suggestions even as theoretical possibilities. So it is worth recalling that the vast bulk of safety and
health standards in the United States consist of voluntary agreements among producers themselves, usually through the mediation
and technical assistance of trade associations or independent organizations such as the American National Standards Institute
(ANSI), the American Society for Testing and Materials (ASTM), and Underwriters Laboratories (UL). We may presume that such
voluntary standards are worth their costs to the producers, else they would not have agreed to them. Generally speaking, and
putting aside an important complication to be discussed later on„ this means that the standards increase market demand
and output, making the domestic economy more efficient and productive. And there its no reason in principle to say that government‑mandated
standards cannot have a similar effect. It is entirely plausible that a public agency could establish a safety standard that
producing firms would not agree to on their own because of organization and negotiation costs and differences of interest
among firms, but that is nevertheless in the firms' collective interest and in the interest of consumers as well. Of course,
many government standards pertaining to safety and health, such as municipal fire codes and state and federal workplace and
product regulations, are simply adoptions of voluntary private standards. In turn, a number of private standard‑setting
programs are the result of government efforts to encourage product simplification and interchangeability initiated by Herbert
Hoover when he was Secretary of Commerce in the 1920s.2
Safety and other quality regulations applied to products competing directly in international markets would also assist
domestic firms if the result was to give buyers in these markets a desired assurance of product quality. A good example is
the experience of Japanese goods in world markets after World War II, when the label "Made in Japan" had come to imply "Cheap Imitation." During the 1950s the Japanese government
established a program of rigorous quality standards and inspection of a large share of export products, bestowing the "JIS"
(Japanese Industrial Standard) seal upon conforming products. By the late 1960s the program had substantially alleviated the
traditional wariness toward Japanese goods, to some degree transforming the wariness into positive preference, and had played
an important part in boosting Japanese exports.3
Another example concerns wine. Today several California wines are as good as the best
French wines, but the variance in the quality of California wines is greater than that of
French wines and much greater than that of wines from well‑known regions of France. So if you stop to purchase a bottle of wine on your way to a friend's house
for dinner, and you are not an expert., you may hesitate to purchase a California
wine with an unknown label because you don't know exactly what you will be getting. The French labels are also unfamiliar
and are more expensive than most of the Californias, but you may know that a Beaujolais
("Appellation Beaujolais Controlee") will be pretty good‑no possibility of embarrassment—and that a St.‑Emilion
("Appellation St.‑Emilion Controlee") will be superb. The French regulatory system enables consumers to be more discriminating
when they purchase French wines. Consumers sometimes will and sometimes will not be willing to pay the premium for this assurance,
but the net effect is surely to increase world demand for French wines over what it would be without regulation.
Finally, environmental regulations almost certainly contribute directly to the international competitiveness of the
domestic economy to some extent. Cleaner air than we would have with no regulation is in part an intermediate good: it has
direct economic benefits, such as improved health and shorter commuting times (workers living closer to their places of work),
that yield an unambiguous net reduction in the costs of domestic production of goods sold in international markets. A government
official charged solely with promoting exports would be an enthusiastic champion of this amount of pollution control. This
amount does not, however, exhaust the possibilities of economically beneficial environmental quality, which is the amount
individuals would pay for in well‑developed markets for the use of air and water. Cleaner air and water is to some degree
a matter of final consumption rather than an intermediate good, meaning that individuals want it and are willing to pay for
it simply for the pleasure it gives—like an art reproduction for the living room or a bottle of St.‑Emilion—entirely
apart from any measurable contribution to productive endeavor. 'If we distinguish between the "production margin" and the
"consumption margin" of pollution controls applied in one nation's economy, the "consumption margin" will burden rather than
enhance the economy's competitiveness in international markets. The control costs of the "consumption margin" yield a product
that is entirely consumed within the nation, leaving nothing of direct or indirect value to foreigners.
Our export official will oppose the "consumption margin" of pollution controls as vigorously as he favors the "production
margin," but his view is economically myopic. There is no reason to distinguish between cleaner air for its own sake and other
kinds of products, such as many personal services, whose production and consumption are entirely domestic. We could, for example,
restrict lawn mowing, window washing, and dry cleaning, or ban them altogether. The effect would be to stimulate exports,
since some of the people and other resources engaged in providing these services would then enter markets for the production
of goods sold abroad. But our nation would be poorer as a result. It is important to realize that the amount people are willing
to pay for cleaner air is influenced by their wealth, and that their wealth is in turn influenced by their productivity in
international markets. Expenditures on the "consumption margin" of pollution control permit individuals to consume more clean
air but less French wine, English woolens, or Brazilian coffee. To limit domestic consumption of as much clean air, or clean
windows, as individuals are willing to pay for is to tax one's citizens in order to subsidize citizens of other nations. If
anything, a nation’s economic interest may be to consume "too much" in the way of environmental amenities by taxing
foreign consumers. Suppose that the United States was the world's sole
producer of coal, that foreign demand for our coal was extremely inelastic, and that the production of coal generated heavy
pollution within the United States. It
would then be in our interest—although over the objections of our export official—to restrict pollution in
the coal industry more than if it were only purchased domestically. We could, in effect, tax foreign consumers for the sake
of domestic consumption.
B. Regulation in Practice
The second proposition asserted at the beginning of this section was that regulation in practice often reduces economic
productivity. This is obviously the more important aspect of regulation and productivity; what is less obvious is whether
it is a peculiarity of our own political system or is inherent in the nature of regulation itself. We do know that, in a liberal
democracy such as ours where the right to petition government is axiomatic, small, cohesive groups are able to manipulate
the machinery of government to their advantage, and that they often do so through regulation rather than the more conspicuous
approach of obtaining outright public subsidies. Thus price controls are often applied to markets without a trace of monopoly
power, such as markets for truck transportation, rental apartments, insurance, and numerous agricultural commodities, sometimes
at the behest of producers and other times of consumers. Regulatory programs such as these are always swathed in the rhetoric
of economic welfare and the public interest, but their actual effect is to enrich particular groups at the expense of others
and in the process to retard rather than enhance economic production.
A separate problem is that government policy making—large public organizations making decisions on behalf of
large populations—tends to be exceedingly risk averse, far more so than the decisions of individuals in their private
capacities. An interesting example is the 1962 federal drug amendments in the United
States, which require the Food and Drug and Administration to determine that all new drugs
are effective prior to marketing. Before the amendments, the FDA had to determine only that new drugs were safe before they
could be marketed; since 1962 it has had to determine also that new drugs possess the therapeutic characteristics indicated
by manufacturers. A study by Sam Peltzman of the effects of proof‑of‑efficacy regulation found that it replicated
the traditional, overcautious approach of hospital formulary committees in adopting new drugs. Before 1962, physicians making
independent drug‑prescription decisions for individual patients tended to adopt effective new drugs years earlier than
hospital formulary committees making hospital‑wide decisions on drug purchases. After 1962, the national rate of introduction
of new drugs fell abruptly to approximately the pre‑1962 adoption rate of the formulary committees.4 Excessive
conservatism appears to be a chronic feature of safety regulation. Recent examples include the ban on saccharin and the automobile
seatbelt‑ignition interlock requirement, both scuttled by Congress after heated consumer protests, and the Consumer
Product Safety Commission's proposed requirement that rotary lawn mowers be equipped to halt the motion of the blade
in three seconds whenever the operator removes his hands from the mower handle.
One important reason for problems such as these is the inherent difficulty of reducing abstract economic ideas (those
discussed in the previous section) to practice through administrative action. There is no question that a firm with monopoly
power can and will restrict output and raise price, and that the result will be damaging to the rest of the economy both domestically
and in international markets. But it is another matter altogether for a regulatory commission to eliminate the damage by calculating
the firm's true economic costs and coming up with a price schedule that covers those costs, and nothing more, efficiently.
For one thing, the cost information is largely a by‑product of the competitive process whose absence is the very problem
being addressed. Economists can demonstrate with elegance and precision that levels of product safety will be too low and
levels of pollution too high in markets with stipulated characteristics, but regulators have no very precise means for determining
the economically "correct" levels in actual markets. They may refer to consumer surveys or accident statistics, or compare
property values among cities with more or less air pollution, but it is virtually impossible to translate such information
into specific regulatory standards.
With only the most abstract norms to guide them, regulators (and their bosses the legislators) are left to make narrow,
case‑by‑case
judgments as best they can, in an environment where the survivors are those best at maintaining and enhancing their
political support. As a result, regulation is as likely to sacrifice as to promote economic efficiency, either out of simple
human misjudgment or for the sake of the day's cause, be it the cause of the Consumers Union or the Maritime Union. Even in
the purest natural monopoly markets we can observe regulated price structures which benefit some groups at the expense of
others, and can only guess whether, on balance, output is really greater than it would be with no regulation at all. Safety and environmental regulations often seem designed to countervene rather than
enhance markets. While markets force us to compromise our limitless desires for various goods, and thus encourage moderation
and balance, regulatory standards tend to be cast in extremes which express only the abstract desire—"best control technology," "zero discharge," "lowest feasible emissions," the "zero cancer risk" Delaney Amendment,
and so on. And regulatory enforcement strategies, such as EPA's "new source performance standards," tend to be politically
opportunistic at the expense of economic productivity, focusing the strictest control requirements on new and dynamic technologies
yet to develop active political constituencies.
While the inherent difficulty of fine‑tuning markets by administrative regulation is a universal phenomenon,
its consequences may vary among political systems. Some political systems, such as those in smaller nations with homogeneous
populations and strong authoritarian traditions, are probably less prone to self‑interested manipulation by organized
factions, so that regulation is less apt to interfere seriously with the efficiency of the economic system. If so, the important
questions are whether the salient features of these systems can be identified and whether they are transferable. Both questions
present immense difficulties; consider that smaller, more homogeneous societies tend to have more extensive programs of social
insurance, which should both reduce demands for regulatory redistributions and
increase the tendency of government agencies to be excessively cautious in setting
health and safety standards. In any event, it ought to be clear that the productivity of one nation's economy is not compromised
by regulation per se, but only by immoderate regulation. The competitive position
of the U.S. economy will not be improved
simply by reducing regulation—although a great deal of reduction is obviously in order‑‑but rather by directing
it to the task of improving the efficiency of all domestic markets.
III. The Effect of Regulation on U.S.
Competitiveness
Regulation touches every major industry in the industrial democracies, and no comprehensive assessment has ever been
attempted of the effects of all of the various regulatory regimes on international trade. We do know that U.S. economic regulation of utilities, major transportation modes, and a few other industries
has sometimes been more successful and sometimes less successful than similar regulation in Europe and Japan. In the United States,
state and federal regulatory agencies have only recently begun to promote economically efficient price structures for electrical
utilities, such as peak‑load pricing, long in use in France's
nationalized electrical system and elsewhere. On the other hand, our regulated telephone system appears to offer better quality
service at lower cost than the systems (usually post‑office subsidiaries) of other nations. Until recently the trucking
industry was heavily regulated in the United States but unregulated in most other countries—apparently to our disadvantage—while
we are unique in having begun to deregulate air transportation‑‑apparently to our advantage.5 Our use
of price controls and administrative allocation to attempt to mitigate the effects of the past decade's oil price increases
has been a major mistake that has hurt us domestically and in international markets6; we would have been wise to
abstain from this form of regulation in the manner of some of. our trading competitors (although our problem has probably
not been lack of wisdom but the presence of a large domestic oil industry that has made distributive issues more important
here than in other nations).
We also know that some health and safety regulations have diminished U.S.
productivity relative to that of other industrialized economies. The best documented instance is the 1962 drug amendments,
mentioned earlier, which require pre‑marketing proof of efficacy of drugs sold in the United States. The effect is to make it more costly to introduce new drugs in the
U.S.—apparently without commensurate
benefits—than in other countries which regulate only drug safety. When the rate of introduction of new drugs declined
sharply in the U.S. after the 1962 amendments, proponents of the new requirement maintained that the decline was a coincidental,
worldwide phenomenon , the result of a depletion of research opportunities after the pharmaceutical boom of the 1950s and
the introduction of more sophisticated and costly drug testing techniques. But subsequent research showed that the U.S. regulatory
scheme had indeed had an independent effect: in the United Kingdom, which does not require pre‑marketing proof of efficacy,
the productivity of research and development investments (measured by the new chemical entities introduced per dollar of R&D
expenditure) declined threefold in the 1960s, while productivity in the United States declined sixfold during the same period.7
Of course, the major issue concerning regulation and U.S.
productivity is the effect of the newer programs of health, safety, and environmental regulation. Since the early 1970s, when
the Environmental Protection Agency and the Occupational Safety and Health Administration were established (along with several
additional regulatory programs covering the automobile and mining industries), U.S. firms have been required to invest many
billions of dollars each year to comply with new regulatory standards. Current annual expenditures are about $56 billion under
all environmental quality programs, and about $4 billion for employee safety and health.8 The period since 1973
has also been marked by very poor aggregate economic performance: the annual growth of measured productivity (output per unit
of input according to the national income and product accounts) has been about half of that during the previous quarter century
since World War II, and productivity has declined absolutely in some recent periods. Clearly if the new regulatory controls
have been a substantial cause of our flagging measured productivity they have also reduced our competitiveness in international
markets.
TABLE 1
1975 AIR QUALITY OBJECTIVES IN SELECTED COUNTRIES
S02.
( m)
ParticuIates
No2
(ppm)
(mg/m3)
(ppm)
U.S.
.14
.26
.13 (approx.)
Japan .04
.10
.02
Germany
.06
NA
.15 (approx.)
France
.38
.35
NA
Italy .15
.30
NA
Canada .06
.12
.10
(all figures are average daily values)
TABLE 2
Automobile Emissions Standards in Selected Countries
CO
HC
No
(g/km)
(g/km)
(/g kmx)
U.S. (1975 federal) 9.30
.93
1.93
U.S.
(1975 Calif.) 5.60
.56
1.24
Japan (1976)
2.10
.25
.60/.85*
Japan (1978)
2.10
.25
.25
Canada (1975) 15.62
1.25
1.94
Canada ("future") 2.13
.25 1.94
*standard according to auto weight
Source for both tables: OECD, Environmental Policies in Japan, Paris,
April 21, 1977.
Such evidence as can be reduced to numbers, however, fails to convict the newer regulatory programs of being major
culprits in diminishing U.S. competitiveness.
For example, the, tables on the following page show that U.S.
air quality objectives and automobile emissions standards have been no more rigorous than those of several of our trade competitors.
And consider the following facts contained in a 1978 paper written by and EPA official in his private capacity.9
·
Between 1971 and 1975 pollution control expenditures approached one
percent of GNP in West Germany and Sweden
as well as in the United States.
·
In 1978 private investment in pollution control plant and equipment
was between $7 and $8 billion both in the United States and Japan.
·
According to a Department of Commerce study, the U.S. market for pollution control equipment is one‑half
of the world market.
·
According to a Federal Trade Commission study, between 1973 and 1975
capital expenditures for pollution control were 18 percent of total capital expenditures in the Japanese steel industry and
14 percent in the U.S. steel industry.
These figures are nothing more than suggestive; international comparisons such as these are notoriously unreliable
since both reporting methods and enforcement procedures vary greatly among countries. It is well known, for example, that
while Japanese automobile emissions standards are stricter than ours, their procedures for testing actual compliance are much
looser. But casual supporting evidence is abundant—the ease with which foreign automobile manufacturers have met U.S.
safety and pollution standards, the relatively greater political strength of labor unions in European nations, the early imposition
of an effluent fee system in the Rhur Valley, and the Japanese compensation law under which firms have been obliged to make
generous compensation to individuals injured by pollution. If anything, the relative abundance of natural resources in the
United States ought to give us a natural
economic advantage in pollution control over other nations. Pollution is substantially a local phenomenon—more so than
is generally acknowledged—and a strong function of population density, so a nation with more air, land, and water
per capita can achieve a given air or water quality level at lower per capita cost. In any event, it is clear that American
experience with costly environmental and workplace controls is not radically different from that of our major economic competitors.
Nor do available statistics suggest that regulation has been a dominant cause of our declining productivity growth.
New regulatory controls have not been the only important change at work in the U.S.
economy since 1973; others include major demographic shifts, enormous increases in the relative price of oil, and a substantial
decline in the rate of new capital formation. Several economists have attempted to isolate the effects of new health, safety,
and environmental regulations on measured productivity and have concluded that the effects have been significant but
not drastic. A fair summary of their results is that net expenditures under the new regulatory programs reduced measured productivity
growth about ten percent annually during the 1970s (somewhat more than this in the mid‑1970s and somewhat less during
the late 1970s since the rate of increase in regulatory expenditures was lower toward the end of the decade).10
The results of these studies are strong evidence that environmental and workplace controls have somewhat diminished U.S. competitiveness: if our productivity growth had been
higher, the costs (hence prices) of our goods sold in international markets would have been lower, regardless of regulatory
activities in other countries. But the studies are not unambiguous proof that the controls were bad for the American economy,
all things considered. All they show is that regulatory compliance diverted resources from uses measured on the national accounts
to uses not measured on the accounts. The unmeasured uses might have been pure waste, or they might have produced truly valuable
goods that weren't captured on the national accounts precisely because of the "market imperfections" giving rise to regulation
in the first place. Part of the benefits of cleaner air and water—what we have called the "consumption margin" earlier
in this paper—never gets reported because no one buys or sells it.
On the other hand, compliance expenditures are only a part of the economic costs of the newer regulatory programs,
perhaps only a small part. Costs not in the form of measurable expenditures, such as the effects of deterred or altered business
investment, either are missed by the productivity studies or are ascribed to other factors such as reduced capital formation.
Probably the most important economic consequences of regulation today arise not from the level of compliance expenditures
but from the increased risk which uncertainty over prospective regulatory requirements has injected into major capital and
R&D investment decisions. Increased uncertainty means that firms delay capital investments, require higher rates of return
when they do invest, and expand their facilities in smaller and more costly (at the margin) increments.11 The economist
Alan Greenspan writes that the two major factors adding to investment risk in recent years are inflation and regulation. He
observes:
“A
second, although somewhat smaller, contributor to higher‑risk premiums is escalating business regulation. . . Although [health and environment] regulatory changes
have directly increased the cost of new facilities in a
major way, this has not been the crux of the risk problem. Higher costs may inhibit investment but, once specified, they at least are no longer uncertain. Far worse
for capitalinvestment decision making is the fact that regulations
may, indeed will, change in the future, and in a way that is unknowable at present. This, rather than known costs, has engendered uncertainty and hesitation among
businessmen.” 12
Two
spectacular instances of the effect of regulatory uncertainty on business activity are the current circumstances of the coal
and nuclear power industries and their major customer, the electric power industry, but less conspicuous examples pervade
the manufacturing industries where firms compete directly in international markets. Moreover, as Robert Trandall has shown,
federal environmental policies are heavily biased against newer and more productive industries.13 Not only do the
major pollution‑control statutes establish tighter standards for new than existing facilities, but EPA enforcement penalizes
industries where productivity growth is highest. Enforcement in industries such as chemicals, paper, and utilities is relatively
more strict than pollution control considerations warrant, apparently because these industries can "absorb" control costs
with the least visible economic disruption. It is easy to see how this comes about as the natural result of EPA's efforts
to minimize the political costs to itself of implementing the air‑ and water‑pollution control statutes. EPA is
inclined to be very tough and uncompromising when dealing with environmental. issues in the abstract—when it is setting
national air‑quality goals and guidelines for emissions and effluents. But when it comes down to cases the agency is
most likely to back off—to agree to waivers or postponements or simply to defer enforcement actions—where application
of the general standards will close plants or produce other conspicuous results, which is precisely in the least productive
industries such as steel where foreign competitors have already gained a competitive advantage over American producers. This
bias in enforcement suggests that at
least some of the measurable lost productivity from environmental controls is waste. More important, it suggests that the
effects of regulatory uncertainty on new investment may be greatest precisely in those sectors of the economy which could
contribute most to our competitiveness in international markets.
The effect of government regulation on the riskiness of private business decisions is the kind of problem economists
can feel in their bones without being able to express in hard statistics. Among businessmen themselves, however, it probably
constitutes the problem of regulation in the U.S. today. In part the problem is simply an accompaniment of the growth of the
public sector, political decisions being inherently more ambiguous and uncertain than private ones. Yet we observe that, in
other nations with large public sectors, regulatory policies are developed and implemented through close and continuing collaboration
among representatives of private groups and government ministries. Policymaking in Japan is no doubt much less gentlemanly and "consensual" than it appears to the
casual American observer. But it is hard to believe that any other system could match our own for creating uncertainty over
the nature and impact of regulatory decisions. In the United States,
it is not unusual for a single regulatory standard to be fought out for years in highly formal proceedings before hearing
officers, a full commission, and a Court of Appeals, with several remands and revisions along the way, only to culminate in
a cliff‑hanger at the Supreme Court—which may start the whole process over again. The relatively higher (if unmeasurable)
"uncertainty costs" of the American regulatory process may be the most important consequence of regulatory growth for our
competitiveness in international markets.
IV. Consensual Alternatives to Adversarial Regulation
The idea that regulation in the United States can and should be
recast along the more collaborative lines of other countries is due in part to examples such as the following from Ezra F.
Vogel's Japan as Number One:
Lessons for America.14
...MITI
[Japan's Ministry of International.Trade
and Industry officials do not approach their task legalistically. Their view is that rapidly changing conditions require more adjustment to individual predilections
and special circumstances than is
permitted by relying on legal precedent . . . Important issues therefore are not resolved by courts or even by legal criteria but are settled on the basis of more complex
judgments about world trends, market
potential, political and financial support, and individual company capacity... Whereas in the United States,
regulatory functions are usually independent of departments like commerce and work at cross purposes, in Japan
the combination of regulatory and advisory functions within MITI helps insure that regulations are administered in a way consistent with the ministry's overall
purpose.
The point implicit in this passage appears explicitly in recent work by scholars from other fields. For example, an
article by Peter H. Schuck, an academic lawyer, compares the "litigation model" of regulatory decision‑making unfavorably
to the "bargaining model." 15 He argues that litigation suppresses rather than evokes information pertinent to
mutually agreeable decisions, accentuates policy disagreements, and is often unsuited to highly complex disputes which cannot
be reduced to a single regulatory or judicial decision without oversimplification.
While Schuck believes that "direct bargaining between interests will probably never play a major role in the development
of regulatory policy," he suggests that "[h]ybrids such as structured bargaining can be fashioned to conform to the needs
of particular regimes and to draw upon the strengths (and minimize the weaknesses) of each model."
In the same vein, John Dunlop writes in a recent paper on "The Negotiations Alternative to Markets and Regulation."16
...[N]egotiations have the virtue that they may reduce the high costs to the parties of litigation, reduce the time
required for a resolution, as well as the uncertainty of the resolution. Further, the two sides are ordinarily capable of
more imaginative solutions to problems than any outsiders, since they know presumably more about their problems and controversies
than do others. It is also the case that many of the conflicts among groups are so complex, or groups are so powerful relative
to each other, that increasingly they cannot be decided with a winner and a loser. The negotiations process often discovers
a viable form of accommodation riot previously evident. Negotiations can be creative and problem‑solving, while most
litigation tends to be formalistic and sterile. Professor Dunlop suggests the regulatory process would benefit from a greater
appreciation of the role of negotiations "between representatives of fairly stable or continuing organizations or groups over
a period of time" and contributes a number of general rules drawn from the field of labor negotiation.
It is safe to say that none of these observers believe the United States could replicate national economic planning
as practiced in Japan, or advocate a second attempt at federal regimentation of major industries in the style of the National
Recovery Administration, or think that due process in its present, ornate American embodiment is only a lawyer's argument.
They are united by frustration with the litigiousness of regulation in the U.S.,
and by a sense that our highly adversarial relationship between business and government is increasingly costly and anachronistic
as our economic well‑being increasingly depends upon our performance in world markets. They would have regulators act
as mediators among many groups with divergent but legitimate interests, rather than as champions of one group against others,
and they would have policy established with an eye toward workable compromise rather than toward what the courts might permit
or require. But what would their "negotiations alternative" look like in practice?
A good example is set forth in a recent report of the Social and Economic Committee of the Food Safety Council, Principles
and Processes for Making Food Safety Decisions.17 The report recommends the establishment of a Food Safety Assessment
Committee, chaired by the Administrator of the Food and Drug Administration, and consisting of representatives of groups interested
in food safety regulation—different segments of the food and drug industries, plus consumer, nutritional, and health
organizations outside the industries. The Assessment Committee would be charged with fashioning agreements (in the form of
recommendations to the Administrator) on general FDA policies and procedures in the food safety area, and with passing upon
major regulatory issues such as approval or disapproval of new additives promising uncertain risks and benefits to consumers.
The Assessment Committee's purpose would be avowedly political. Its members would be expected to act not as disinterested
experts but as agents of particular interests and viewpoints. They would represent "continuing organizations or groups over
a period of time" (Dunlop's term), which would encourage them, say, to swap approval of a new food additive for removal of
an old one approved earlier, rather than litigating over both additives. The report does not say how representation on the
Assessment Committee would be decided or whether its decisions would be by majority, unanimity, or something in between; nor
does it recommend changes in other regulatory procedures or opportunities for judicial review. But the clear premise of the
report is that the Assessment Committee procedure would lead to a more balanced evaluation of scientific evidence in particular
cases, would facilitate practical compromises among competing interests, and would reduce the use of formal legal procedures
before and after FDA Decisions.18
During the past year a few "consensual alternatives" have even gotten past the proposal stage. One was President Carter's
"Steel Tripartite Advisory Committee," consisting of representatives of the federal government, the major steel corporations,
and the United Steelworkers of America. The Committee, meeting regularly throughout 1980, negotiated detailed recommendations
for modifying the industry's air‑ and water‑pollution control standards on the condition that saved compliance
expenditures be invested in plant modernization. 19 The modifications (and conditions) were recommended to Congress
by President Carter shortly before he left office. Another is the Health Effects Institute, chaired by three academics but
funded jointly by the automobile industry and EPA, which is to fund research into the health effects of automobile pollution.
The avowed purpose of the Institute is to replace "adversarial science" with agreement between the industry and government
over the scientific bases of automobile pollution standards. 20
Initiatives
and proposals such as these run strongly contrary to the current drift of actual regulatory policy, which is to make regulation
more formal and abstractly "rational" and to increase the isolation of the decision maker from the private parties in interest.
An example of this tendency is the "freedom of information" and "government in the sunshine" laws which guarantee full publicity
of all aspects of the regulatory process (thus encouraging posturing for the edification of particular constituencies
and discouraging candor and compromise). Another is the increasingly stringent restrictions on "ex parte" communications between
government officials and parties to regulatory proceedings (which guarantee that officials cannot act as intermediaries—imagine
if U.S. officials could only talk to Begin
or Sadat when both were present). A third is the practice of regulatory agencies, at the behest. of the courts, to publish
increasingly elaborate accounts of the formal logic underlying their decisions, such as the methods employed to resolve uncertainties
or contradictions in scientific evidence and the relationship of these methods to general statutory standards (imagine having
to "explain" a wage settlement in such terms). 21 A fourth example is recently regulatory statutes, such as the
Delaney Amendment and the Clean Air and
Clean Water Acts, which hem the discretion regulatory officials with specific standards and deadlines or with commands that
standards be set strictly according to the results of medical studies.
The implicit assumption in each of these cases is that there exists a "correct" decision to every regulatory controversy
which can be achieved by vigorous and open application of disinterested intelligence. In this view, the policy‑making
process can only be sullied by close association between public officials and representatives of private interests—especially
business interests—or any dialogue between them not couched in elevated terms of the public interest. A true consensus
among competing private interests is probably impossible, and if possible it will be far from the "correct" decision since
it will sacrifice unorganized interests not part of the consensus: therefore regulators should listen to the arguments of
private parties in an atmosphere approximating that of a trial, and insofar as possible should base their final decisions
on purely scientific considerations.
The "negotiations alternative" is equally at odds with the current direction of "regulatory reform" policy, exemplified
by the White House regulation‑review procedures instituted by Presidents Ford and Carter and now being expanded by President
Reagan, and by the current proposal to establish a "regulatory budget" covering the costs imposed on the economy by the federal
agencies and commissions. 22 Reform policies such as these are championed by economists and business groups interested
in minimizing the economic costs of regulation. 23 The reforms seek to minimize costs, however, by requiring regulatory
agencies to conduct extensive cost/benefit analyses of prospective regulations and to conform their decisions to the results
of the analyses. There is some congruence in this variety of "regulatory reform" and some of the ideas for making regulation
more collaborative; Professor Yogel, for example, is concerned to eliminate conflicts in economic policy among different agencies
of the government, which is also a purpose of the White House review procedures. But the two approaches are fundamentally
inconsistent. Policies that seek to harness regulatory decisions to the conclusions of economic analyses, like the policies
mentioned in the previous paragraphs, put their faith in the possibility of making regulation more rational and scientific—cost/benefit
analysis being the purest logical approach to arriving at economically "correct" regulations. To the extent the faith is justified,
the result will be to minimize the net costs of regulation, for net costs are zero when costs and benefits are equilibrated
at the margin. But if the faith is not justified—if, for example, cost/benefit analysis is simply used as another weapon
in the battle of competing private interests—the result could be to delay the regulatory process even further and introduce
additional uncertainty over the ultimate resolution of individual cases, thus increasing the true economic burden of regulation.
A collegial body of interest‑group representatives such as the proposed Food Safety Assessment Committee would make
use of the cost/benefit estimates along with other scientific evidence, but the results of its deliberations need not pass
a cost/benefit test in any particular case; on the other hand, the results would presumably be a matter of far less uncertainty
to the parties involved.
The conflict between the consensual approach and the rationalist/ adversarial approach to regulation is hardly a new
phenomenon. The "negotiations alternative" is not a new discovery from another culture or a different area of domestic policy,
but rather the oldest of regulatory ideas. The original idea that regulation should be carried out by a commission, rather
than a hierarchical agency, was advanced precisely as a means of accommodating diverse interests in a reasonable fashion.
The Federal Trade Commission conducted its work primarily through industry "trade practices conferences" during the twenties
and thirties, which were never reviewed by a court and of which no formal record survives. 24 The Federal Communications
Commission's regulation of the Bell System's rates and services consisted almost entirely of informal, unrecorded negotiations
until the 1960's. And, as we have already noted, early safety and other product standards in the United States were also the result of informal government‑industry collaboration.
25
The current trend both of regulatory policy and "regulatory reform" is in fact a reaction to this kind of consensual
regulation‑by‑negotiation, and the "negotiations alternative" is in turn a reaction to the excesses of reform.
As James Q. Wilson explains26:
...In the 1960's, college and law school students were exposed
to books and articles written by persons disillusioned with the regulatory commission, though not with the idea of regulation.
Scarcely any student majoring in political science could have avoided hearing that regulatory agencies; were "captured" by
industry . ...A bright student would also have heard economists say regulation of entry and rates,as practiced by the ICC
and the CAB, imposed costs on the consumer by keeping prices at above‑market levels. At the same time, they would learn
from each other, if not from their professors, that the environment was being degraded and the consumer "ripped off." These
students would later enter government service carrying with them the political residue of these intellectual arguments: agencies
should be reorganized to prevent their capture, regulation of entry and rate is of questionable value, and regulating the
nature and quality of the product and the conditions of the workplace will produce substantial benefits. . . The result was
a series of new agencies headed by single administrators (rather than commissions), committed to regulating quality rather
than price, and governed by standards and deadlines affording minimum opportunity for the exercise of discretion.
In this light, the proposal for a Food Safety Assessment Committee appears not as a radical new departure but rather
as a return to the commission model of regulatory decision making.
Today one can identify isolated attempts to resolve regulatory disputes through negotiation and consensus, but the
prevailing intellectual winds described by Professor Wilson continue to blow strongly in the opposite direction. There is,
for example, an instructive contrast between the way divisions of jointly‑collected revenues have been handled in the
railroad and telecommunications industries.27 In the telecommunications
industry, revenue settlements have been a matter of private negotiation between the Bell System and the independent telephone
companies under the loose supervision of the FCC, and the results have been satisfactory on the whole.
Following this tradition, when the FCC began to encourage "specialized common carriers" to offer long‑distance
transmissions services in competition with the Bell System in the 1970s, the terms of interconnections between Bell and
the new carriers were negotiated through the informal mediation of FCC officials rather than through litigation. 28 But in the railroad industry, revenue settlements among independent railroads
have been determined by enormously complex and protracted "divisions" cases before the ICC (sometimes lasting over twenty
years) which have taken a high toll in direct litigation costs and industry morale. One difference between the two cases is
that the telecommunications industry is dominated by a single firm, which tends to encourage smooth negotiations by reducing
transaction costs. But another difference is that the Interstate Commerce Act contains a number of specific provisions,
absent in the Federal Communications Act, discouraging private settlements and encouraging recourse to regulatory process.
For example, the ICC must give formal approval to all divisions formulas, and established divisions may be revised only by
the Commission (after a full hearing and according to elaborate economic criteria)whenever any party opposes revision‑‑which
of course is always the case. Under the circumstances, it seems unfortunate that current legislative proposals to revise
the Federal Communications Act would borrow from the railroad experience by making revenue settlements among telecommunications
companies a matter of formal proceedings before the FCC.
The prospect is equally dim for making health, safety, or environmental regulation more consensual. The Food and Drug
Administration, far from embracing anything like the proposed Food Safety Assessment Committee, has increasingly, delegated
(de facto) decisionmaking responsibility in both the food and drug areas to panels of academic experts assembled by the National
Academy of Sciences, apparently in an effort to minimize its exposure' to political and judicial criticism. 29
In spite of the fuss made last fall over the Steel Tripartite agreement, the Clean Air Act and Clean Water Act still consist
of an endless series of specific regulation‑forcing and technology‑forcing standards and deadlines; the new Administration
in Washington may succeed in modifying some of these, but
the basic structure of the statutes seems likely to remain intact. 30
The Consumer Product Safety Act does contain a provision authorizing the Consumer Product Safety Commission to designate
private groups as "offerors" to develop and propose product safety standards. This provision could be used to establish standards
through collaboration among industry and consumer groups in the manner of the proposed Food Safety Assessment Committee, but
when industry groups have asked to be designated as "offerors" of standards for their products, the Commission has generally
reacted by designating consumer groups instead; this is what happened in the case of the lawn‑mower standard, which
was drafted by Consumers Union, and the CPSC's policy appears to be that industry groups should not be a part of the offeror
process. At the same time, the Federal Trade Commission is presently considering a regulation to require private standards‑setting
organizations (such as ANSI and ASIM, mentioned earlier) to observe most of the due process, formal‑hearing, and written‑decision
requirements of administrative law in developing voluntary standards. It seems that safety regulation is becoming more rather
than less legalistic, and that the scope for negotiations which might incorporate the knowledge and interests of manufacturers
is narrowing.
The increasing formalism of regulation in the United States
may in time run its course, and the more pragmatic approach described by Professors Dunlop, Vogel, and Schuck recover some
of its former respectability. This could come about through sheer force of the example of other nations whose more collaborative
regulatory procedures demonstrate their comparative advantage over ours in the international marketplace. Or it could come
about through sheer exhaustion of the capacity of pure science to suggest "correct" resolutions of regulatory disputes. Clearly
we have already reached the limits of science in many areas of regulatory policy. Linda Cohen has shown, for example, that
the great increase (during the late 1970s) in the time required to obtain licenses for building and operating nuclear power
plants resulted from the Nuclear Regulatory Commission's inability to resolve "generic" scientific issues in individual licensing
cases—essentially unanswerable questions concerning very low probabilities of major accidents and long‑term effects
of very low levels of radiation. 31 Food and drug regulation is becoming an endless technological race between
manufacturers improving the quality of their products and the FDA improving the sensitivity of its testing procedures. Thus,
in the current (since the early 1970s) proceeding involving the use of acrylonitrile in beverage containers, the issue is
whether any detectably acrylonitrile monomers can be shown to "migrate" from containers into beverages, making the container
material a hazardous "food additive." During the most recent round of the proceeding, the manufacturer reduced the migration
characteristics of his product by over one order of magnitude so as to comply with the existing FDA standard, only to be bested
by the FDA's increasing the sensitivity of its migration testing procedures by two orders of magnitude. This led the reviewing
judge to wonder whether the FDA had really based its disapproval of the product on the second law of thermodynamics, which
predicts some migration between any two substances in contact. 32
It is, however, unlikely in the extreme that we shall see a mere return swing of the pendulum to the kind of government-industry
collaboration which characterized the New Deal and the earlier days of industrial regulation. Already economists such as Herbert
Stein have warned of the "mushy syndicalism" represented by President Carter's Steel Tripartite Committee and other "New Industrialization"
projects. The warning has great economic merit. The tendency for regulatory consensus to be achieved through narrow self‑protection
and self‑promotion is well documented and understood. As mentioned earlier, the function of such disparate institutions
as cost/benefit analysis and judicial rights to administrative due process and review has been to expose and counteract this
tendency. And if formal institutions such as these are highly imperfect to the task, so is the informal alternative of including
labor, consumer, or "public interest" representatives in the regulatory consensus. For example, it is commonly assumed that
manufacturers will be too lenient in setting product safety standards if left to their own devices. But in fact sellers will
typically benefit from uniform safety standards that are higher than are desirable from the consumer's viewpoint; many state
occupational licensing standards are cases in point. The reason is that uniform standards, while they may enlarge product
markets as discussed in the first section of this paper, may also restrict the domain of product‑quality competition
among sellers, enriching sellers at the expense of consumers and retarding economic productivity.33 There is a
danger, then, here and in other areas of regulatory policy, that negotiations among established firms and organized consumer
or "public interest" groups will produce an easy consensus over restrictive standards that are harmful to consumer welfare.
There is a political as well as economic aspect to this problem. Who will decide which groups are permitted to sit
at the regulatory bargaining table, and on whose authority will they negotiate towards what will be, in the end, public laws.
These problems are left unanswered in the proposals of the Food Safety Council
and the American Bar Association, and in the structures of the Steel Tripartite Committee and the Health Effects Institute,
since in every case all that is being negotiated over is recommendations to a regulatory official or to the Congress. But
the incentives of interest‑group representatives to negotiate seriously will obviously remain weak so long as they can
resort to the courts whenever they are unhappy with the results of the bargaining process:, if consensus‑building mechanisms
are simply an additional layer in the regulatory process rather than a substitute for major parts of it, they might produce
little or nothing in the way of faster and more certain regulatory decisions. 34
Indeed, the most effective—and perhaps essential—way to stimulate regulatory negotiations would be to eliminate
all rights to judicial review of administrative decisions. A regulatory official in the unappealable position of the baseball
umpire would be in the strongest position to prompt all sides to "be reasonable" and to produce quick and certain decisions.
This, however, would constitute a radical transformation of the American political system: the right to judicial review of
administrative decisions is essentially a constitutional right, the procedural concomitant of legislative delegation of important
law‑making functions to appointed officials. And let us suppose for the sake of argument that such a constitutional
revolution, leading to hundreds of unelected legislative bodies making thousands of small regulatory decisions, were both
possible and desirable from the standpoint of the society as a whole. Would businessmen, or representatives of any other particular
group, be willing to gamble that they would be better off than under present arrangements? Business leaders might recall that
it was their predecessors in the 1930s who first became disillusioned with the industrial‑code program of the National
Recovery Administration (and whose desertion led to the collapse of the entire effort) as a result of irreconcilable differences
of interest among themselves and their fear of the growing power of organized labor in the NRA program. 35
In the end our business community may simply learn to live with‑and eventually acquire a stake in—the current
regulatory style. There is some evidence that this is already happening. Major American firms and trade associations are becoming
highly proficient at using cost/ benefit analysis and related techniques of policy analysis to their advantage in EPA and
OSHA proceedings. The Business Roundtable, as we have seen, favors cost/benefit analysis and expansion of the White House
regulation‑review program. In the long run this might not be such a bad thing. A good deal of the litigiousness of regulation
over the past decade has simply been the result of rapid statutory change: productive negotiation is less likely and litigation
more likely when there is uncertainty over underlying legal standards, and such uncertainty invariably accompanies new legislation.
As business comes to master the techniques of policy making under the new health, safety, and environmental statutes, the
"uncertainty costs" of regulation may greatly diminish.
***
Notes
1Owners of foreign monopolies would, of course, be wealthier than owners
of domestic monopolies. But even the domestic monopolies would earn as much as owners of resources employed in competitive
markets, so investment in domestic and foreign monopolies would be equivalent. And the greater wealth of foreign monopolists
would be exactly offset by the lesser wealth of their consumers.
2See David Hemenway, Industrywide Voluntary Product Standards,
Ballinger (1975), pp. 22‑24, 73. Cf., Ellis Hawley, "Three Facets
of Hooverian Associationalism: Lumber, Aviation, and Movies—1921‑1930," Department of History, University of Iowa (mimeo., October 1980); Robert W. Hamilton,
"The Role of Nongovernmental Standards in the Development of Mandatory Federal Standards Affecting Safety or Health," 56 Texas Law Review 1329 (November 1978).
3Id.; pp. 70‑71.
4Sam Peltzman, "An Evaluation of Consumer Protection Legislation: The
1962 Drug Amendments," Journal of Political Economy, Vol. 81, No. 5 (1973), pp.
1049, 1080‑81.
5The Harvard Faculty Project on Regulation is conducting a study of the
effects of the Airline Deregulation Act of 1976. The study has found that output is higher and prices lower in the air transportation
industry than they would have been had regulation continued after 1976. While quality of service has diminished for some consumers,
especially regular business travelers, this appears to be a transitional effect which will resolve itself as new airframes
(more appropriate to the expanded market) are put into service. John R. Meyer, et al., Airline Deregulation: The Record
and the Prospects (mimeo, Harvard Faculty Project on Regulation, forthcoming, 1981. Preliminary results are presented
in a series of articles in the Journal of Contemporary Business, Vo1.9, No. 2 (1980),
pp. 69‑122.
6Kenneth J. Arrow and Joseph P. Kalt, Petroleum Price Regulation:
Should We Decontrol?, American Enterprise Institute 198.
7Henry G. Grabowski, John M. Vernon, and Lacy Glenn Thomas, "Estimating
the Effects of Regulation on Innovation: An International Comparative Analysis of the Pharmaceutical Industry," Journal of Law and Economics, Vol. XXI(1) (1978), p. 133.
8The environmental quality figure is from Council on Environmental Quality,
Environmental Quality: Eleventh Annual Report (December 1980), p. 397; it includes public expenditures for municipal
sewage treatment and private expenditures to comply with noise, pesticide, and land reclamation regulations as well as private
expenditures to comply with air‑ and water‑pollution controls. The occupational safety and health figure is derived
from McGraw Hill Publication Company, Eighth Annual Survey of Investment in Employee Safety and Health (May 1980, which
reported that such investments accounted for 1.6% of all capital investments in 1979. The U.S. Department of Commerce has
since reported that 1979 capital investments totaled $270.46 billion—1.6% of which is $4.33 billion. This figure is
not, of course, an "annual expenditure" figure; however, the McGraw Hill annual reports suggest that capital investments have
been running at between $2 and $5 billion annually for several years and will continue at this level for several more years,
and these amounts do not include operating and surveillance costs in meeting health and safety regulations.
9William T. Burke, "International Trade Effects of the U.S. Environmental
Program," paper presented at American Chemical Society Symposium on Critical and Strategic Materials, Carnegie Institution,
Washington, D.C., June 5‑7,
1978.
10The most widely cited studies are those of Edward F. Denison, "Effects
of Selected Changes in the Institutional and Human Environment Upon Output Per Unit Input," Survey of Current Business, January 1978, p. 21, and "Pollution Abatement Programs: Estimates of their Effect
Upon Output Per Unit of Input, 1975‑1978," Survey of Current Business, August
1979, p. 58. Denison's studies and several other are meticulously
reviewed in Gregory Christiansen, Frank Gollop, and Robert Haveman, Environmental and Health/Safety Regulations, Productivity
Growth, and Economic Performance An Assessment, paper prepared for Office of Technology Assessment, U.S. Congress, January
1980. An excellent discussion of the uses and limitations of the most recent productivity studies is Paul R. Portney, "Macroeconomic
Models and the Impacts of Federal Environmental Regulation," Natural Resources Journal
(forthcoming Spring 1981).
11These effects are exacerbated if the known costs of regulatory compliance are great enough to make new capacity more costly per marginal unit of output
than existing capacity. See Robert A. Leone and John R. Meyer, "Regulation, Inflation and the Business Investment Decision,"
Harvard Business School (mimeo, December 1979).
12Alan Greenspan, "Economic Policy," from P. Duignan and A. Rabushka
(eds.), The United States in the 1980s, Hoover Institution (1980), pp. 31, 36‑37.
13Robert W. Crandall, "Is Environmental Policy Responsible for Declining
Productivity Growth?," paper presented at conference of Society of Government Economists, Atlanta, Ga., December 1979; "Pollution
Controls and Productivity Growth in Basic Industries," paper presented at conference on Productivity Measurement in Regulated
Industries, Madison, Wis., May 1979.
14 Harvard
University Press (1979), p. 78.
15"Litigation, Bargaining, and Regulation," Regulation, Vol. 3, No. 4 (1979), p. 26. Schuck and other writers in this tradition draw upon Lon L. Fuller's
influential essay on the shortcomings of adjudication in resolving complex or "polycentric" problems, "The Forms and Limits
of Adjudication," 92 Harv. Law Rev. 353 (Dec. 1978).
16August 1979 (mimeo, on file at the Harvard Faculty Project on Regulation).
17Food Safety Council, Washington,
D.C. (December 1979).
18A general proposal similar to the Food Safety Council's appears in
the Final Report of the American Bar Association's Commission on Law and the Economy. One of the Commission's twelve final
recommendations is that the federal regulatory agencies "consider establishing policy consultation boards whose members would
aid in focusing on and resolving policy problems. The boards should be broadly representative of concerned interests, including
business, labor, uses of regulated services, technical experts, government officials, and other affected groups." Federal
Regulation: Roads to Reform, American Bar Association (1979), p. 100.
19 Report to the President by the Steel Tripartite Advisory Committee
on the United States Steel Industry, Steel Tripartite Advisory Committee, United States Department of Labor (September
25, 1980); Jimmy Carter, "A Program for the American Steel Industry, Its Workers and Communities," Office of the White House
Press Secretary (September 30, 1980). Michael B. Corash, General Counsel of EPA, has explained the work of the Tripartite
Committee as a response to the adversarial structure of EPA's regulatory statutes, modeled on the Japanese experience. See
the report of the Conference on Corporate Responsibility, Graduate School of Business, Stanford University, November 14, 1980
(forthcoming from Stanford University (title unknown), Fall 1981).
20 The announcement of the establishment of the Health Effects Institute
was attended by top executives of all the U.S.
automobile, truck and engine companies, the Administrator of EPA, and other federal officials. See "Health Institute to Study
Motor Vehicle Emissions," New York Times, December 13, 1980, p.8.
21 The decisions and dicta of the U.S. Court of Appeals for the District
of Columbia Circuit (which handles most petitions for review of federal regulatory decisions) have been a major cause of the
increasing formality and complexity of regulatory procedures—both before and after the Supreme Court attempted to call
a halt to the process in its 1978 Vermont Yankee decision. A vigorous account is
Antonin Scalia, "Vermont Yankee: The APA, the D.C. Circuit, and the Supreme Court," 1978
Supreme Court Review, p. 345.
22These policies are analyzed in Christopher C. DeMuth, "Constraining
Regulatory Costs—The White House Review Programs," Regulation, Vol. 4, No.
1 (1980), p. 13, and "Constraining Regulatory Costs—The Regulatory Budget," Regulation,
Vol. 4, No. 2 (1980).
23 The regulatory reform recommendations of the Business Roundtable emphasize
strengthening the existing regulation‑review procedures within the Executive Branch and increasing the agencies' obligations
to engage in cost/benefit analysis; the Roundtable makes no mention of increasing the scope of informal negotiations among
government officials and representatives of interested groups, although it recommends against
public funding of participation by "underrepresented" interests in regulatory proceedings. See The Business Roundtable, "Regulatory
Reform Legislation" (mimeo, January 1980).
24 Alan Stone, Economic Regulation and the Public Interest, Cornell University
Press 1977 , pp. 58‑59.
25 Supra n.2
26 The Politics of Regulation," from J.Q. Wilson (ed.), The Politics
of Regulation (1980), pp. 386‑7.
27 Robert C. Godbey, "Review and Cost Allocations: Policy Means and Ends
in the Railroad and Telecommunications Industries,” Harvard
University, Program on Information Resources Policy (July 1979).
28 Kurt Borchart, "The Exchange
Network Facilities for Interstate Across Interim Settlement Agreement, "Harvard
University, Program on Information Resources Policy (August 1979).
29The use of NAS panels to make food and drug decisions more "scientific"
is discussed in critical detail in Steven G. Breyer, Regulation and Its Reform, Harvard Faculty Project on Regulation
(Publication R‑79‑04 December 1979), pp. 399‑420 (forthcoming Harvard University Press).
30An interesting comparison of the Clean Air Act with the "New Deal model"
of wide regulatory discretion is Bruce A. Ackerman and William T. Hassler, "Beyond the New Deal: Coal and the Clean Air Act," 89 Yale Law Review 1466 (July
1980)
31 Linda Cohen, "Innovation and Atomic Energy," Law and Contemporary Problems, Vol. 43, No. 1 (1979), p. 67.
32 Monsanto Co.
v. Kennedy, 613 F.2d 947 (C.A.D.C. 1979).
33 See Lacy G. Thomas, "The Economics of Producer Developed Safety Standards,"
Department of Economics, University of Illinois (mimeo., Feb. 1980); Hayne E. Leland, "Quacks, Lemons, and Licensing:
A Theory of Minimum Quality
Standards," Journal of Political Economy, Vol. 87, No. 6 (1979) p. 1328.
34 Evidence on this point is that it has taken much longer to develop
safety standards under the CPSC's "offeror" process than under the commission's internal administrative procedures—834 days versus 330 days on average. Comptroller General of the United States, “The Consumer Product Safety
Commission Needs to Issue Safer Standards Faster,” H.R. Doc. No. 78‑3, 95th Cong., 2d Session (1977).
35See Ellis W. Hawley, The New Deal and The Problem of Monopoly
(Princeton Paperback 1969, pp. 66‑71).
