Regulatory Reform is a Start, But We Need New Ways of Making Laws
At the 2011 World Economic Forum in Davos, the accounting firm KPMG reported that 70 percent of CEOs and other senior executives from the world’s largest companies saw increasing “complexity” as their number one challenge. The complexity they were most worried about? Law.
While there is an interesting effort underway from the Trump administration to reduce the number of federal rules, there are still far too many, and at the current pace, this work is likely in vain. Perhaps as importantly, the way we have been making regulations (the Administrative Procedure Act) is now 73 years old and completely unsuitable for risks we face from new technologies. There are better methods, but only if we are willing to truly embrace change.
First, think about the sheer number of rules and regulations in place. In a recent study published by the Mercatus Center at George Mason University, Laura Jones, Patrick McLaughlin and Stephen Strosko reported that the United States and Canada have 1.1 million and 72,000 federal “regulatory restrictions,” respectively. (Due to measurement differences, it’s not an apples-to-apples comparison.) Canada has been reducing regulations though a mandated “one-in, one-out” offset policy for seven years, compared to the United States’ one-in, two-out approach that began in 2017 (although more than 90 percent of new regulations manage to escape the offset).
U.S. companies still must interpret over 175,000 pages and 50 volumes of the Code of Federal Regulations. The Clinton administration tried to get federal agencies to write rules in plain language, but even simple rules can distract from solving problems. A study by Michael Laverie and Roger Flanderin, for example, found that too many and too complex rules distracted nuclear workers from focusing on the most important thing: safety.
Of course, official federal regulations are just the beginning. There are many thousands of federal guidance documents, executive orders, proclamations, memoranda, bulletins, circulars, letters and speeches that capture firms’ attention. It’s not always clear how they are supposed to respond to this regulatory “dark matter.”
States also have regulations, guidance documents and proclamations. Ambulatory healthcare services alone have a median of 5,000 regulatory restrictions per state. In fact, no one knows exactly how many rules there are in the 50 states.
Obviously, there are good and bad rules. Bad rules don’t solve real problems or are too broadly applied. An example of the latter is the inclusion of celery and grapes — which have never been implicated in a food safety outbreak — in an expensive FDA rule concerning produce recordkeeping. In fact, FDA has a risk assessment showing that 46 percent of all fruits and vegetables have never had a problem, but decided to include all produce just in case.
Now, the reason agencies do a risk assessment in the first place, and the reason Congress required it, is to discriminate between those products that are actually risky and those that are not. But here’s the bigger problem: These kinds of rules — and the ones that are just plain ineffective — can crowd out expenditures that focus on actual, immediate safety issues.
For example, instead of complying with the produce recordkeeping rule, firms — which have every incentive to avoid the bad publicity or legal blowback from a serious food safety issue —could instead invest some of their limited resources in blockchain traceback technology that reduces the time it takes to identify where a contaminated food ended up from a week to 2.2 seconds. Whether done by farms or grocery chains, it’s a better way to spend food safety dollars.
Regulations have financial costs, too. By one estimate, federal regulations alone amount to nearly $15,000 per household each year, or about $1 out of every $10 spent. It’s yet another reason to separate the worthwhile rules from the ineffective.
The idea that we need hard-and-fast regulations that anticipate every worst-case scenario is expensive, unsafe and outdated. Two of the leaders of Arizona State University’s Governance of Emerging Technologies program note that “emerging technologies like nanotechnology, synthetic biology and many others” have risks that are difficult, if not impossible, to predict and trying to keep up with them through traditional regulation will not work because of the “extremely rapid pace of development and change.”
Regulations often take four or more years to issue — a lifetime for new tech. The World Economic Forum reported in 2016, “relying only on government legislation and incentives to ensure the right outcomes is ill-advised. These are likely to be out-of-date or redundant by the time they are implemented.”
This is not about the regulatory state versus laissez-faire. It’s about whether we waste an inordinate amount of resources trying — often in vain — to solve next-generation challenges versus seeking new solutions that will actually work (and cost less).
What we need is something fast, inexpensive, flexible, effective and inclusive. A tall order, but one that author Gillian K. Hadfield has illuminated in “Rules for A Flat World.”
Arguing against conventional rulemaking, Hadfield suggests an inclusive approach where multiple types of groups compete to make hard and soft law that is “smart, connected and rapidly adoptable.” Rules competitively formed by groups such as guilds, with enforcement by social sanctions, have been used for centuries. These rules don’t necessarily come from governments —they can come from firms, consumer organizations, neighborhoods, communities or any of the other groups Nobel Prize-winning Elinor Ostrom described as being able to solve common problems without top-down law.
Allowing for competitive groups creating their own laws is a radical change from top-down, government-run law. Yet if we don’t move rapidly in a different direction, we risk being overwhelmed with costly, ineffective rules that leave us less safe.
Richard Williams is a senior affiliated scholar with the Mercatus Center at George Mason University and a former director for social sciences with the Food and Drug Administration’s Center for Food Safety and Applied Nutrition.
