Are Regulations Choking Business Growth?

By Christine, Brian | Risk Management, July 1995 | Go to article overview

Are Regulations Choking Business Growth?


Christine, Brian, Risk Management


Exorbitant punitive damages in products liability cases... extraordinarily complex and expensive environmental and safety regulations that may or may not actually reduce risks...employment liability laws that greatly complicate an employer's efforts to dismiss an incompetent employee...

These examples, and many other situations like them, illustrate the deleterious effect excessive regulation can have on corporations attempting to remain competitive in today's complex global economy. The pervasive legalism now rampant in contemporary U.S. society represents a fundamental threat to business growth and the well-being of Americans, said Philip K. Howard, author of the bestselling book, The Death of Common Sense: How Law Is Suffocating America.

Speaking at a recent meeting of The Manhattan Institute in New York City, Mr. Howard stated that excessive legal bureaucracy has become the norm at every level of government in U.S. society. "As I looked at our basic institutions, it seemed to me that no one was exercising any judgment anywhere. Then I realized that we have created a system that, in effect, bans judgment from public decisions."

In other words, the U.S. legal system has elevated procedure to an end in itself, said Mr. Howard. This has resulted in laws that do not reflect accurately the risks they are supposed to protect against; these systematic distortions are particularly evident in legislative schemes that directly affect corporations' day-to-day operations.

For example, the Occupational Safety and Health Act (OSHA), passed in 1970, contains approximately 4,000 rules designed to reduce worker injuries and fatalities. Since OSHA's passage, however, the U.S. workplace accident rate basically has not changed, even though businesses have spent tens of billions of dollars on compliance, said Mr. Howard. OSHA's failure, he argued, stems not from the intrinsic ineffectiveness of safety procedures and programs but instead on OSHA's fixation with hard-and-fast regulations. "We've redirected the focus of regulation from what is most important--in the case of worker safety, human attitudes and failings, which are the biggest cause of accidents--to those things that law can make certain, such as the exact height of railings."

Similarly, the regulations promulgated by the Environmental Protection Agency (EPA) have been ineffective in reducing pollution precisely because of the law's undue emphasis on legalism, said Mr. Howard. "Hard-and-fast rules and standards are important, but only as guidelines," he claimed. "When these standards are immutable, you could end up closing down a factory that emits two parts per million of a toxic substance, when otherwise the factory is safe."

Regulatory regimes based on unrealistic or inefficient laws can even lead to corruption. Graft may occur in situations where laws are so burdensome or complex that no organization can comply with them and still remain in business. "There are horror stories of governmental agents coming onto a site and basically extorting these larger companies," said Mr. Howard.

WHAT'S A RIGHT?

How did we get into this mess? The United States' convoluted legal system arose partly from the fact that the definition of citizens' rights has become distorted, said Mr. Howard. "We've gotten confused over what a right is," he explained. "The rights that our founders gave us were freedoms--protections against law." For example, the rights stated that the government couldn't tell citizens what to say or couldn't take property away from them.

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