Promoting Economic PROSPERITY.

• Author: Weidenbaum, Murray L.
• Position: Deregulation

Curbing governmental regulation of American businesses would allow them to become more competitive in the global marketplace.

IN EVERY NATION, obstacles to prosperity and economic growth result from activities of government. While there is no agency with a mission to depress the economy or accelerate inflation, many government actions---especially taxation, spending, and regulation--have those undesirable effects. Costs for regulation of business actually are a hidden tax severely reducing the competitiveness of domestic businesses at a time when they face an increasingly global marketplace.

Reducing the burden of regulation can contribute to more rapid economic growth without the inflationary and currency repercussions that often accompany more stimulating monetary and fiscal policies. Reform of regulation responds specifically to policymakers' desires to reduce the structural impediments to economic growth.

The role of regulation should not be considered in isolation, but as a part of an extensive effort to reduce the burden of government involvement in the economy. This comprehensive approach is essential because of the ease of substituting regulation for other forms of government activity, such as direct Treasury outlays.

The popular view of regulation is wrong. It is not a contest between "the forces of good" (meaning the government) and "the forces of evil" (obviously, business). The reality is that the consumer is at the receiving end of the numerous impacts and repercussions generated by regulation. Business is the middleman.

The nature of regulation becomes apparent when one looks at it from the viewpoint of the business enterprise. For each box on the company's organizational chart, there are government agencies that are counterparts: environmental regulators and construction of new facilities; job safety regulators and the workplace; employment regulators and human resource policies; transportation and communication regulators and the movement of goods, services, and information. Those agencies--and many others--are involved heavily in the firm's internal decision-making. The impact of those government rulemakers and controllers is in one direction: increasing the firm's overhead and operating costs, slowing down its decision-making processes, and reducing the resources available to produce goods and services.

Regulation results in the higher prices consumers pay to cover the cost of compliance. That makes regulation attractive to government officials. The costs do not show up in the government's budget. Yet, citizens do not escape paying the bill. Politicians have an old saying: "The best tax is a hidden tax." Regulation generates the most hidden taxes of all since the costs are imbedded in prices of goods and services that consumers purchase.

In the U.S., expenses for meeting the rules promulgated by Federal regulatory agencies add up to more than $500,000,000,000 annually. Regulation by state and local governments add to these costs. If Congress had to appropriate another $500,000,000,000 a year in taxes to cover those expenses, it is unlikely so much regulation would be approved.

Beyond the direct financial impact, there are subtle and more serious burdens resulting from the government's rules and prohibitions. By the time the Clean Air Act is implemented fully in 2005, its impact (combined with that of previous environmental regulations) will reduce the U.S.'s gross domestic product by more than three percent a year. That is just one regulatory program, albeit the largest.

Regulation reduces the degree of competition, flow of innovation, and production of new and better products because so many government agencies have the power, which they frequently exercise, to decide whether or not a company can enter an industry or a new product go on the market. The biggest obstacles to developing...