The number and complexity of federal regulations affecting manufacturers continue to grow, placing a heavy financial burden on the sector, according to a recent study by the Manufacturers Alliance for Productivity and Innovation (MAPI). Manufacturing advocates say a more transparent and better-coordinated regulatory regime, along with increased cost-effectiveness, could significantly reduce the drag on productivity.
The MAPI study states that the costs of federal regulations for the U.S. manufacturing sector have increased an average of 7.6 percent annually since 1998, while output in the sector has only grown 0.4 percent yearly during the same period. Since 1981, federal agencies have released 2,302 regulations that affect manufacturers, of which 270 have an individual economic effect of $100 million/yr or more.
Industry advocates note the cumulative nature of federal regulations, as new regulations get piled on top of existing regulations with little coordination by regulatory bodies. This creates inefficiencies and considerable uncertainty for businesses, they argue.
Erik Glavich, director of infrastructure, legal, and regulatory policy for the National Association of Manufacturers (NAM), told IMT that the organization "is not anti-regulation, but pro-smart-regulation." The problem of cumulative regulations "is something that the Obama administration really pays attention to," he said. "We support a lot of the efforts they've taken."
The president's Executive Order 13610, "Identifying and Reducing Regulatory Burdens," is focused on the cumulative burden of regulation, Glavich said.
"There's really not any one regulation in particular that you can easily grab hold of that is costing manufacturers," he said. "The question is how do we create an institutional process that improves the efficiency of our overall regulatory system?"
MAPI CEO Stephen Gold echoed Glavich's concern about regulation's cumulative burden. He noted that "there are a lot of little fixes people are focusing on" at the legislative level.
"In the end, you've got to think of what's politically practical," he told IMT. "In an efficient and effective system, agencies would coordinate with each other, you'd have transparency and cost-benefit analysis across the board, and some kind of accounting each year."
The most important takeaway from his organization's study, he said, "is that we tend to look at regulations one at a time." He continued: "What I envision is that the regulatory system should be like the highway system, so you have in essence a system with cautions and stops and other protections to keep regulations from crashing into each other, a process that creates efficiencies in the flow of traffic. You have that in the tax code. When you pass a new tax, there's an accounting for it. As it is now, there's no single agency that acts as an overall accounting authority for regulations."
Gold suggests that "perfect legislation" would create better coordination among agencies to ensure that each knows when the others are working on a rule and that they look for the least expensive way to achieve the same results. Gold thinks such authority should rest with Congress rather than the executive branch.
Glavich and Gold pointed to the Progressive Policy Institute's (PPI) Reinventing Regulation project as a positive approach toward mitigating the problem of cumulative regulation. PPI has proposed that Congress establish a Regulatory Improvement Commission (RIC) that would be authorized to review the cost-effectiveness of existing regulations.
President Obama has worked to develop an enhanced regulatory review process, or "regulatory look-back," Emily Cain, spokesperson for the White House Office of Management and Budget (OMB), told IMT.
The process "is already on track to remove billions of dollars of regulatory costs in the near term, with more savings to come," she said. "During the first four fiscal years President Obama was in office, the net benefits of major rules finalized are about $159 billion per year, almost four times the net benefits for the same period of the previous administration."
The MAPI report cited the Department of Transportation (DOT) as one of the agencies imposing considerable burdens on manufacturing. DOT has 880 regulations on its books, 122 of of which are major regulations costing an estimated $25 billion yearly, according to MAPI.
A DOT spokesperson to IMT that "Secretary [Anthony] Foxx has named increasing efficiency as one of his top three priorities for the Department of Transportation, asking the department to find new ways to build on its efforts to cut red tape and maximize the return on every dollar."
The department also pointed out that some regulations help manufacturers, such as the "Buy America program, which ensures that transportation projects are built by American workers using American materials."