Environmental Regulations vs. Economic Health

Article excerpt

IMPROVING the environment and economic growth are not mutually exclusive goals; however, they are not easily reconciled, either. Those who blithely maintain that environmental regulation is good for the economy because it creates jobs are deluding themselves--and the rest of society. Similarly, those who insist that ecological considerations always must be subordinated to economic concerns--or vice versa--are guilty of that tunnel vision they so frequently impute to others.

By training, economists have a special interest in seeing to it that resources are used effectively, whether the purpose is ecological, political, or economic. While no environmental programs are created with the express mission to depress the economy and raise the unemployment rate, many have that effect. The barriers to economic growth imposed by regulatory agencies are numerous and expanding steadily. In 1993, the Census Bureau--hardly a citadel of right-wing ideology--issued a technical report on the effect of environmental regulation on productivity. Their conclusion: a $1 increase in compliance costs reduces productivity by $3-4.

Not surprisingly, the business community generally talks more about the costs of regulation than the benefits, while the proponents of regulation stress the benefits and downplay the costs. After all, from the viewpoint of the average company, for each box on its organizational chart, there are one or more government agencies that are counterparts to that box, such as the Environmental Protection Agency (EPA), Occupational and Safety Health Administration (OSHA), and Equal Economic Opportunity Commission (EEOC). Each is involved heavily in the company's internal decision-making.

The impact of those governmental rule-makers is in one predictable direction: to increase the firm's costs and reduce the resources available to perform its major task of producing goods and services. Government regulation results in the higher prices consumers pay to cover compliance.

The expense of complying with environmental regulations amounted to about $130,000,000,000 in 1993. That is not a static figure. When they reach their stride, the Clean Air Act Amendments of 1990 will add new costs amounting to at least $25,000,000,000 annually. When the expense of meeting the rules promulgated by dozens of other regulatory agencies--ranging from OSHA to the National Highway Traffic Safety Administration--are added in, the aggregate hidden tax of regulatory costs comes to $200-300,000,000,000 a year. That is $2-3,000 per household in the form of higher prices for the items purchased. Some analysts come up with even greater numbers.

Going beyond the dollar signs, more subtle and even more serious burdens become visible. Central among these are the adverse effects on research and development, productivity, capital formation, and competitiveness.

Regulation has reduced the flow of innovation and production of new and better goods because so many government regulatory agencies have the power--which they frequently exercise--to decide whether or not a new product will go on the market at all. Required paperwork also produces a lengthening regulatory lag, often running into years. This is a costly drain on the time and budgets of private managers as well as public officials. A decade ago, a California land developer could obtain zoning for a typical residential development within 90 days. Currently, it takes an average of two years of intensive work to attain an entitlement to build there.

Opening up new production facilities involves surmounting an even greater array of regulatory obstacles. A company must obtain agreement from dozens of agencies at each of the three levels of government--local, state, and Federal. A single "no" anywhere along the line can halt years of planning, effort, and investment.

Higher regulatory costs have reduced the competitiveness of many American companies struggling in an increasingly global marketplace. …