American Business and the New Social Regulation

Business Economics, January 2009 | Go to article overview

American Business and the New Social Regulation


Thomas A. Hemphill is an assistant professor in the School of Management, University of Michigan-Flint.

Business Economics (2009) 44, 51-56. doi:10.1057/be.2008.3

Beginning in 2007, many U.S. industry associations radically adjusted their national political lobbying strategies to support legislative enactment of social regulatory policy, policy that is primarily designed to address issues related to health, safety, and the environment. The regulations that are derived from such policy are generally limited to a specific issue, but they also have the power to regulate across industry boundaries. The normative justifications for environmental, health, and safety regulation often include the impact of negative externalities generated from a manufacturing process on employees and the natural environment and/or the existence of "information asymmetries" between business and the consumer concerning potentially harmful physical qualities associated with products [Dudley 2005, p. 33].

Throughout much of this decade, much of the American business community embraced an adversarial public policy position to enacting federal environmental, health, and safety mandates. The general position of the U.S. business community is that industry regulation is often unnecessary and a costly "regulatory tax" on their operations--much of which is passed directly through to the American consumer. (1) However, their rent-seeking, nonmarket activity has recently evolved into a more cooperative approach with other public policy stakeholders, including consumer interest groups and governments, to enact new social regulatory initiatives [Lipton and Harris 2007]. Moreover, there are other times when specific industries lobby their elected representatives to enact legislation for a national regulatory framework. For many domestic industries, this appears to be one of those times. Although major industry associations such as the U.S. Chamber of Commerce and the National Association of Manufacturers have continued to "stay the course" with their largely antiregulatory agendas, other industry-specific associations, such as the Toy Industry Association, the Specialty Vehicle Institute of America, and the Grocery Manufacturers Association, are supporting stricter federal regulatory controls over their products [Williamson 2008].

A confluence of legal, political, and economic factors are motivating this industry-based effort to enact new federal social regulations [Lipton and Harris 2007]. Legally, there are many industries looking for protection from product liability lawsuits and anxious to eliminate a patchwork of state product liability laws or civil legal actions. Having been unsuccessful at enacting tort reform legislation in Congress, since 2004 the Bush administration--with strong industry support--is using executive branch rule-making authority to include preemption clauses in preambles of new federal regulations. In particular, these block consumer product liability lawsuits filed under state law from being heard in state courts, where juries are more often receptive to a plaintiffs' claim against a corporation [Yost 2008]. (2) At the request of corporate defendants who seek legal venues less biased against them, these product liability cases are then adjudicated in the federal court system. Since 2005, such preemption clauses have been included in 51 administrative rules proposed or adopted, with 41 of these administrative rules promulgated by the U.S. Food and Drug Administration (FDA) and the National Highway Traffic Safety Administration [Yost 2008].

Politically, industry groups are concerned (and legislative activity in the 110th Congress offers reasonable justification) that the new Democrat majority in the U.S. Congress will institute a major social and economic regulatory agenda with burdensome administrative rules for the business community to implement. With the Bush administration still wielding the Presidential veto and in control of the executive rule-making process until January 20, 2009, manufacturers are hoping to acquire new regulations in 2008 that they consider less costly and burdensome to implement than what could result if both the executive and legislative branches of the federal government are Democrat-controlled in 2009. …

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