Impact of Manufacturing Regulations

The Competitive Edge: The Growing Impact of Manufacturing Regulations

Stephen Gold is president and CEO of Manufacturers Alliance for Productivity and Innovation (MAPI), an executive education and business research organization in Arlington, Va. (www.mapi.net).

Over the past decade, U.S. manufacturers intuitively felt that regulatory-compliance costs on their companies were growing. It turns out they were right. New research into the impact of federal regulations on manufacturers, commissioned by MAPI and prepared by NERA Economic Consulting, confirms that since 1998 the cost of manufacturing-related rules has grown far more rapidly than manufacturing itself: Manufacturing regulations grew an average of 7.6% a year in that time span compared with average growth of 0.4% for the sector’s output.

See Also: Global Manufacturing Economy Trends & Analysis

The report, "Macroeconomic Impacts of Federal Regulation of the Manufacturing Sector," also shows that the number of major regulations—those with an impact of $100 million or more—have continued to climb over the years. The Clinton administration issued an average of 36 major regulations each year, President Bush promulgated an average of 45, and now President Obama’s agencies are issuing an average of 72 major rules annually.

Costs Keep Mounting

In other words, even when the economy is slumping, even when American manufacturing is severely contracted and facing the most intense global competition ever, federal regulatory costs keep mounting. There is no political or managerial discipline. For a country that can’t shake off its economic slump and can’t create jobs, this is like shooting ourselves in the foot.

Not that everyone sees it that way. Some advocacy groups continue to portray manufacturers as "bad guys" that need tighter and tighter controls placed on them. To them, a growing manufacturing base means a growing risk to public health and safety. As Rena Steinzor, the president of the Center for Progressive Reform, said to me prior to a recent radio debate, "This country’s problem is there aren’t enough regulations."

Fortunately, a growing number of policymakers understand that the vast majority of manufacturers are good employers and good citizens who play a critical role in generating innovation, national income and employment. They recognize the need for balance, because manufacturing has been one of the lone bright spots in the economy since the recession ended in June 2009.

Of course, highlighting the growing regulatory burden on manufacturers does not equate to calling for elimination of regulation. Health and safety rules obviously have a critical role to play in an increasingly complex economy. Manufacturers simply need a more cost-effective, coordinated system through which federal agencies issue rules targeting their operations.

Over 2,100 Regulations Since 1981

Such a system surely doesn't exist now. The MAPI-NERA study found that since 1981, the federal government has promulgated 2,183 manufacturing regulations—or just under 1½ regulations per week for more than 30 years. Moreover, these regulations have been layered one on top of another during those three decades, interacting to create additional distortions in manufacturing economic activity. As observed by Dr. David Montgomery, NERA's principal investigator for the report, the actual impact on manufacturers is considerably greater than simply the sum of the individual regulations. No wonder manufacturers see the current regulatory regime as death by a thousand cuts.

And that’s only part of the story. NERA couldn’t measure the impact of all regulations, because the Office of Management and Budget is only authorized to assess the cost of "major" regulations—those promulgated by executive-branch agencies that have an annual effect on the economy of $100 million or more. Ninety percent of regulations that affect manufacturers—almost 2,000 of the 2,183 rules—don’t meet that threshold, so NERA was unable to examine cost estimates for them.

One factor not considered in the MAPI-NERA report was the benefits of regulation. Society obviously benefits from health and safety regulations. But MAPI chose not to measure these because no matter what the findings, in times of high unemployment and little income growth nothing could justify the “costs-don’t-matter” approach that regulatory advocates prefer. If policymakers want a competitive manufacturing sector, they need to implement a more coordinated approach that results in more cost-effective regulations.
 

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