Whining about federal regulations has become a national pastime. That has led Congress to seek changes in the way regulations will be evaluated in the future
As anyone running a small business these days knows, federal regulatory policy doesn't work. All too often, little attention has been paid to the purposes of regulation, whether those goals are worth trying to achieve, and how best to accomplish them. The result is maddening inefficiency or worse, particularly for small companies, which often lack the technical staff needed to comply with regulations.
Consider Robert Lindner. He runs Fort Wayne Mold & Engineering, in Fort Wayne, Ind. His company, with 40 employees, designs and builds precision rubber molds. To save money and provide a better product to his customers, Lindner did his own chrome plating. But no more. A minor change in the amount of chromium allowed into the atmosphere -- from three parts per million to two parts per million -- which was mandated by revisions in the Clean Air Act, forced Lindner to make a choice: spend $300,000 on new scrubbers or stop doing his own chrome plating. He shut down his plating operation, resulting in less service to and higher costs for his customers.
Herb Spivack, president of Mereco Technologies Group Cos., in West Warwick, R.I., has a slew of concerns about regulation. His small business manufactures adhesives, sealants, and electronic materials, including epoxy resin compounds for the aircraft and computer industries. Spivack is plagued by federal regulations that require him to list all the chemical ingredients of any product he sells overseas. The problem: listing the chemical ingredients amounts to granting a license for his competitors to copy his formula. Additionally, divulging the information would eliminate Mereco's trade-secret rights and thus nullify its protection under trade-secret rules. Without that protection, Mereco could be forced out of business. The traditional government response has been to suggest Spivack patent the formula. But, as most entrepreneurs know, the only way to protect a patent is through the courts -- an extremely expensive option. So far, Spivack has decided to forgo sales in several countries rather than divulge Mereco's trade secrets.
Spivack, like most small manufacturers, also has a long list of complaints about the Occupational Safety and Health Administration. For instance, OSHA requires companies to develop and maintain safety-data sheets on employees' exposure to even minute quantities of hundreds of chemicals. Spivack had to hire four Ph.D.'s to write the data sheets. He now has seven large file cabinets filled with the sheets and has three photocopiers going virtually around the clock to answer requests for the information from customers and others who are required to obtain it. And thanks to other regulations imposed by Washington, Spivack has had to hire someone with an advanced degree to run his shipping department.
Luckily, help may be on the way for Lindner, Spivack, and thousands of others who run small businesses. Washington is gradually seeing the light. One way or another, the top-down, one-size-fits-all approach to regulations is being replaced by commonsense flexibility. President Clinton has eliminated 16,000 pages of regulations, with a promise of more cuts to come. But the greatest benefit for small businesses will result from changing the process by which regulations are evaluated and enacted. Pending legislation in Washington is cause for small-business owners to hope that relief is on the way.
Increasingly, regulations cost more than they're worth. That's why Congress is receptive to forcing bureaucrats to perform cost-benefit analyses on more regulations than is currently the case. One of the Senate bills, cosponsored by Senator Robert Dole, would dramatically change the way regulations are evaluated and put into place.
Currently, many regulations are enacted in response to perceived problems, brought to the public's attention by the press or by interest groups or by government bureaucrats. A good example is the Alar scare, which cost apple growers millions of dollars before additional scientific study proved the chemical safe. Regulators who set the goals aren't required to consider what it will cost to comply with regulations. The new approach, with its emphasis on weighing the relative costs and benefits, will mean that proposed regulations that don't provide a societal benefit in excess of the cost won't be enacted. That will force the government to set priorities -- placing more emphasis on and using more resources for preventing the worst problems. Were such a process already the law of the land, Fort Wayne Mold & Engineering might still be doing its own chrome plating, and Mereco Technologies Group might not need four Ph.D.'s to write data sheets for OSHA.
Another process change that's part of the new legislative approach would open proposed regulations to outside scientific peer review. It would allow more diverse and rigorous scientific study of proposed regulations and force bureaucrats to get them right the first time. Moreover, Washington is more receptive than ever before to creating a mechanism that would make it easier to challenge existing regulations that don't make sense, like the one forcing Herb Spivack to choose between protecting trade secrets and selling his goods overseas. If, when issuing regulations, agencies fail to perform the risk assessment and cost-benefit analysis required by the legislation, then agency decisions would be subject to review by the courts.
In today's competitive economic environment, America must regulate smarter. That means creating a new approach to government regulation, one that employs sound science, prioritizes risks, accurately assesses the relative costs and benefits of proposed regulations, and allows greater flexibility. Senator Robert Dole has said it best: "These reforms are about accountability -- forcing the government to tell the rest of us why it chooses to regulate a certain way, and making it defend its choice."* * *
Jerry Jasinowski is president of the National Association of Manufacturers and coauthor of Making It in America: Proven Paths to Success from 50 Top Companies (Simon & Schuster, 1995).