The new era of business regulation - government regulations

Business Horizons, July-August, 1996 by Thomas A. Hemphill

In 1994, Philip K. Howard, a New York corporate lawyer, published a best-selling diatribe against the stifling overabundance of government regulations. His book, The Death of Common Sense: How Law Is Suffocating America, offers a litany of regulatory horror stories that have fueled the antiregulatory fires in the nation's capital. The three branches of the federal government are all actively involved in regulatory reform efforts.

Near the end of its 1994-95 session, the U.S. Supreme Court handed down a major decision affecting the direction of federal equal employment opportunity/affirmative action regulations. In Adarand Constructors v. Pena, the justices rendered a judgment that racial preferences are rarely acceptable in federal procurement policies. The Court's holding narrowly restricted the application of affirmative action guidelines in such contracts.

In the executive branch, President Clinton has placed regulatory reform in a preeminent position under his "Reinventing Government" program. The Clinton administration began its efforts to streamline the regulatory development process when the President issued Executive Order No. 12866, Regulatory Planning and Review, on September 30, 1993 requiring risk assessment and cost-benefit analysis for new regulations. In 1995, the administration announced an array of executive branch changes in environmental, health, safety, and other regulations affecting the business community. These regulatory changes would offer small businesses reduced paperwork requirements, fewer fines, and more flexibility in complying with federal rules. The administration also completed a broad executive branch review of affirmative action policies that recommended minor technical reforms. In addition, in response to the U.S. Supreme Court's judgment on Adarand Constructors v. Pena, the U.S. Department of Justice issued new guidelines establishing stricter standards for federal affirmative action programs.

On Capitol Hill, the Republican-dominated 104th Congress focused part of its ambitious "Contract With America" legislative agenda on reforming the federal regulatory apparatus. Probusiness coalitions--such as the 1,000-member Alliance for Reasonable Regulation and "Project Relief," a non-partisan coalition of 350 corporations, associations, and individuals--were formed to lobby for the enactment of regulatory reform legislation. These groups required that regulations be based on "sound science," risk assessment, and balance risks and costs, and yield the greatest degree of protection for health, safety, and the environment.

After Republicans successfully passed an omnibus regulatory reform bill (H.R.9) in the House of Representatives, regulatory reform efforts (S.343) stalled in the Senate as opposition solidified among Democrats. In 1996, a presidential election year, only smaller, more incremental administrative measures, changes to individual statutes, or a more limited regulatory reform bill are possible. The comprehensive legislative risk assessment and regulatory reform debate in Congress will re-emerge in post-election 1997.

A brief history of modern American regulatory reform is warranted. Under the Carter administration and the first term of the Reagan administration, the first federal reform movement brought increased competition to the energy, transportation, and financial services industries and some slowing in the growth of social regulation. Industry regulation concentrates on a specific industry and concerns itself with the economic aspects of the industry, such as markets, rates, and the obligation to serve customers. In contrast, social regulation, appearing in the 1960s and '70s, is issue-oriented and non-economic in nature, crosses industries in its impact, and affects the manufacturing process and physical characteristics of products. In the intervening decade, however, a cumulative slide back in the direction of the "regulatory state" occurred. The second federal regulatory reform movement of the mid-1990s, unlike the first, focuses on a major overhaul of social regulation.

THE NEW CORPORATE REGULATORY ENVIRONMENT

Regulatory reform proposals, now being implemented through Clinton administration executive order, will significantly alter the regulatory regimes of many of the federal government's most intrusive agencies into business operations: the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Food and Drug Administration. The threat of far more comprehensive regulatory reform legislation proposed by the Republican-controlled 104th Congress provided the political catalyst for the Clinton administration to accelerate its "Reinventing Government" efforts at reform. The congressional plan for regulatory reform is still in the process of being crafted. The final legislation, permanently codifying into law many of the regulatory reforms already initiated by the executive branch, could provide more extensive regulatory relief for American industry.