Don't retreat on deregulation - A Business Agenda for the 90's - Cover Story

Nation's Business, Sept, 1990

Don't Retreat On Deregulation

Government regulation, one of the most efficient disincentives to economic growth, peaked in the anti-business climate of the 1970s and faded in the pro-enterprise environment of the '80s. But it looms again as a major threat to U.S. competitiveness.

Business costs for complying with federal regulations are heading toward new heights in this decade. And moves under way in Washington would impose vast new costs on business.

Some examples:

* Clean-air legislation that President Bush is expected to sign will cost U.S. companies - including thousands of small businesses - a minimum of $21 billion annually on top of the $32 billion that companies already spend yearly for air-pollution controls.

* Government controls continue to restrict development of new sources of energy at a time when the U.S. depends on imports for half of its oil supply, and much of that is in the volatile Middle East.

* Many small businesses will incur substantial costs to comply with new requirements for accommodating the disabled. These firms will have to modify their facilities to accommodate handicapped customers and employees.

* Separate bills aimed at tightening rules on job discrimination have been passed by the Senate and the House, and efforts to agree on a single bill are under way. The legislation would encourage lawsuits over employment practices and would drastically increase the burden of legal costs that business is already incurring to meet federal mandates.

The trend toward reregulation is evident in the increasing numbers of government workers employed by federal regulatory agencies and in the rising budgets of those agencies.

The Bush administration "is on a [regulatory] growth trajectory that looks similar to budget trends from the Carter years," says a new study detailing the resurgence. Under Bush's 1991 budget proposal, spending at federal regulatory agencies would rise to its highest level ever - to $12.25 billion, according to the study, by writer and analyst Melinda Warren and Kenneth W. Chilton, associate director of the Center for the Study of American Business, at Washington University, in St. Louis.

The budgets for regulatory agencies would rise 9 percent in nominal terms over fiscal 1990 and 4 percent after adjusting for inflation. The number of workers employed at regulatory agencies would rise by 4,300 over the 1990 level - to 113,300. Employment in 1991 would be just 5,500 workers short of the 1980 peak, which was the final year of the Carter presidency.

Under then-President Reagan, the regulatory bureaucracy decreased by 15 percent from 1980 to 1985, then increased about 1 percent a year through his second term.

Disturbed by the regulatory revival and the speed with which Congress is passing legislation requiring new regulations, the U.S. Chamber says the administration and Congress must reverse course. The world's largest federation of companies and business associations says the new regulatory fad is completely out of synchronization in a nation seeking to increase its competitiveness.

In a letter to President Bush, Chamber President Richard L. Lesher urged the president to reaffirm the deregulation commitment he exhibited as chairman of the Reagan administration's Task Force on Regulatory Relief. Lesher told Bush that initiatives to reverse the reregulation trend would send "an important signal to those in the agencies and Congress."

Another business-agenda goal under the general heading of government actions that impede economic growth is product-liability reform. The objective in this area is a uniform federal statute that will establish equitable standards for determining whether products are defective and under what circumstances the makers may be liable. The need for this legislation arose from the current situation in which manufacturers face lawsuits under 50 different state laws and are often the target of multimillion-dollar judgments on the flimsiest of grounds.

The advantages of freeing business from excessive regulatory controls are well documented. Studies point to the success of deregulation in the telecommunications, airline, railroad, and trucking industries, for example. If Congress and the president are serious about the future competitiveness of U.S. companies, they should use these analyses as the bases for further deregulation.

But Congress is headed in the other direction, as indicated by the legislation cited on the preceding page. In addition to those measures, many bills that would impose new regulatory burdens on business are pending. Among the measures that would have a broad impact on business are bills to limit the Office of Management and Budget's control over business-paperwork requirements, to strengthen consumer-safety regulations, restrict pension plans, and impose new environmental requirements on business.

In recent months, Bush has shown some signs of increased sensitivity, toward the reregulation trend and rising costs of U.S. companies. For example, he asked Vice President Dan Quayle to redirect the Council on Competitiveness, a White House policy group under Queley's purview to focus on regulation and its impact.