100 The Resource War in 3-D Budgeting as a Tool for Managing Regulation Greater attention should be given to the role of the budget process in managing regulation. In those cases where an agency's regulation generates more costs than benefits, the agency's budget for the coming year would be reduced. Because the appropriations for the regulatory agencies are small portions of the government's total budget, limited attention has been given to them in the budget process. In view of the large costs that they often impose on the society as a whole, greater attention is warranted to the reviews of their appropriation requests via a regulatory budget. Such an approach would set limits, not only on the costs incurred by each regulatory agency, but also on the total costs that each agency could impose on the private sector. This type of budgeting could provide a powerful incentive to regulators to seek least-cost solutions in promulgating and enforcing regulations. Alternatives to Regulation The promulgation by government of rules and regulations restricting or prescribing private activity is, of course, not the only means of accomplishing public objectives. Codes of behavior adhered to on a voluntary basis can be effective. Government itself has available to it various powers other than the regulatory mechanism. Through its taxing authority, the government can provide strong signals to the market. Rather than promulgating detailed regulations governing allowable discharges into the nation's waterways, e.g., the government could level substantial taxes on those discharges. The use of taxation would neither be meant to punish polluters nor to give them a "license" to pollute. Rather it would be using the price system to encourage producers and consumers to shift to less polluting ways of producing and consuming goods and services. Price incentives tend to force the environmental agencies to consider explicitly the cost of cleaning up pollution, while direct controls make it very easy to adopt extremely expensive if not unrealistic goals, such as zero discharge. In the case of the traditional one-industry type of government regulation (as of airlines, trucking and railroads), a greater role should be given to the competitive process and to market forces. Unlike the newer forms of regulation, the older forms are often mainly barriers to entry into a given industry, protecting existing firms from competition by potential new entrants. To date, none of the procedural reforms previously described has been enacted by the Congress. Perhaps the most significant single legislative action in the regulatory reform area in recent years was the law phasing out the Civil Aeronautics Board over a seven-year period. Regarding consumer protection, an information strategy can provide a sensible alternative to compulsory product standards. For the many visible. U.S. Government Regulation and National Economic Strength 101 hazards that consumers voluntarily subject themselves to, the most important consideration in public policy is to improve the individual's knowledge of the risks involved rather than limit personal discretion. In their daily lives, citizens rarely opt for zero risk alternatives but make trade-offs, for example, between speed and safety. More widespread dissemination of information to consumers on potential hazards in various products, in many circumstances, may be far more effective than banning specific products or setting standards requiring expensive alterations in existing products. The information approach takes into account the great variety of consumer desires and capabilities. Interestingly enough, this approach often is favored in consumer surveys, although not by the most vehement representatives of the so-called public interest groups. Conclusion Any realistic appraisal of government regulation must acknowledge that important and positive benefits have resulted from many of the regulatory activities less pollution, fewer product hazards, reductions in job discrimination and other socially desirable goals of our societ. But the "externalities" generated by federal regulation do not justify government attempting to regulate every facet of private behavior. A reasonable approach to this problem requires great discrimination in sorting out the hazards that are important to regulate from the kinds of lesser hazards that can best be dealt with by the normal prudence of consumers, workers and corporate management. It is also becoming increasingly apparent that regulatory objectives cannot be pursued in a single-minded fashion which is oblivious to other important goals of our society. Surely an adequate provision for the national security is a vitally important public concern. It may be an unhappy coincidence, but some sectors of the economy, such as the earlier mentioned foundry industry, which are especially important for defense production, have been among the hardest hit by environmental and other social regulatory costs. Thus, attention to the regulatory reform approaches suggested here becomes increasingly important. It is sad to note that some of the most enthusiastic supporters of social regulation, in opposing these constructive suggestions, have unwittingly produced a situation where the Congress is turning out of frustration to "meat axe" approaches to regulating the regulators. Good public policy is not a philosophical matter of choosing whether government should or should not deal with market failures. Rather, public policymakers need to consider whether, in a given case, the actual practice of regulation will produce more costs and adverse side effects than benefits. That is, the potential for "government failure" should be weighed against the likelihood of "market failure" in deciding the desirability of governmental intervention. And, when 102 The Resource War in 3-D the government does intervene in the economy, it should make sure that the techniques selected are the most effective. Bibliography Armco Steel Corporation, 1975 Annual Report, Middletown, Ohio, 1976, p. 3. Arthur F. Burns, The Condition of the American Economy; (Washington, D.C.: American Enterprise Institute, 1978), p. 8. Kenneth W. Chilton, The Impact of Federal Regulation on American Small Business (St. Louis: Washington University, Center for the Study of American Business, 1978). Comptroller General of the U.S., How to Dispose of Hazardous Waste, CED-79-13 (Washington, D.C.: General Accounting Office, 1978), pp. 5-13. Robert W. Crandall, “Curbing the Costs of Social Regulation," Brookings Bulletin, Winter 1979. Edward F. Denison, "Effects of Selected Changes in the Institutional and Human Environment upon Output per Unit of Input," Survey of Current Business, January 1978, pp. 21-44. F. G. Garibaldi, Government Procedure and Our Energy Future, an address to the Indianapolis Contemporary Club, 1978, pp. 6-9. George S. Lockwood, Some Causes and Consequences of Declining Innovation, address to the Third Carol J. Loomis, "AT&T in the Throes of 'Equal Employment'," Fortune, January 15, 1979. Phyllis S. McGrath, Redefining Corporate-Federal Relations (New York: Conference Board, 1979). James C. Miller, I and Bruce Yandle, editors, Benefit-Cost Analysis of Social Regulation (Washington, D.C.: American Enterprise Institute, 1979). John Quarles, Federal Regulation of New Industrial Plants, Washington, D.C., 1979. Marcus A. Rowden, "Licensing of Nuclear Power Plants," Regulation, January/February 1978, pp. 40-47. Donald Rumsfeld, "A Politician-Turned-Executive Surveys Both Worlds," Fortune, September 19, 1979, p. 94. Synfuels Interagency Task Force, Recommendations for a Synthetic Fuels Commercialization Program, Report submitted to the President's Energy Resources Council, Vol. 1 (Washington, D.C.: Government Printing Office, 1975), pp. C-118, 134. Max Ways, editor, The Future of Business (New York: Pergamon Press, 1978). Murray L. Weidenbaum, Business, Government, and the Public, Second Edition (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1981). Murray L. Weidenbaum, The Future of Business Regulation (New York: Amacom, 1979). Harold M. Williams, "SEC and Mutual Funds: Hands-Off Regulation to be Given College Try," Money Manager, August 14, 1978, p. 6. 103 FOREIGN POLICY AND ACCESS TO NON-FUEL MINERALS By John Norton Moore Interdependence, or more meaningfully for the national planner, "foreign dependence," is a reality in non-fuel minerals, though, as yet, a less traumatic reality than the oil crisis. The U.S. is almost totally dependent on foreign supplies for manganese, chromite, bauxite and cobalt, and it imports about 85% of its asbestos, platinum group metals and fluorspar, from zero to 20% of its copper depending on market conditions, 33% of its iron ore, 14% of its lead, 70% of its nickel, 37% of its silver and 58% of its zinc. Import dependence seems likely to rise because of increased consumption based on an increasing GNP, and because domestic restrictions inhibit domestic production more and more. Overall import dependence of our principal allies is even higher than for the U.S. Increasing dependence and increasing price can worsen the already serious oil-induced balance of payments deficit and, at least in the short run, contribute to greater instability in global financial markets. Indeed, from 1973 to 1978, the U.S. trade deficit in non-fuel minerals increased from $2 to $8 million. Nature of the Problem The increasing national dependence on foreign supply is tempered by a number of factors. First, for the most part supplies of important non-fuel minerals are reasonably widely dispersed. Of non-Communist bloc production, only a few minerals such as the platinum group metals from South Africa, chromite from Zimbabwe and South Africa and cobalt from Zaire are heavily concentrated in only one area. This situation makes potential cartel action more difficult and offers greater, though certainly not guaranteed, security of supply. Second, of total U.S. non-fuel mineral imports, about 78% are from developed market economies such as Canada, Australia, Japan, Israel and Western Europe. Only 22% come from developing countries, although the actual dependence is higher because of previous transshipment. This situation should offer more stable, though not necessarily trouble free, access. Third, quantities used of many non-fuel minerals make a strategic 104 The Resource War in 3-D stockpile program (and in some cases even an "economic stockpile" program) a viable option for cushioning sudden interruptions in supply. Political and economic inducements to reduce stockpiles, however, may in reality also reduce the protection that can be theoretically available from an adequate stockpile program. Fourth, some possible leverage may be available to the U.S. in a few settings from its role as a major exporter of several non-fuel minerals, particularly phosphate, boron, molybdenum and scrap. Fifth, copper, nickel, cobalt and manganese may be available in large quantities from deep seabed "manganese nodules," although economic and political uncertainties currently surround this source. Sixth, unlike oil, as prices rise with shortages in supply, recycled scrap "mining" may dampen the shortfall. Seventh, most foreign exporters can less afford interruptions in production than is the case with Middle Eastern oil producers. Finally, none of these imported minerals approaches the importance to production achieved by oil nor its value as a percentage of world trade, although certain minerals are of extreme strategic importance in individual uses. Supply disruptions of these minerals could generate serious geostrategic and economic crises. Despite these tempering factors, there are at least four groupings of interrelated problems of current foreign policy concern in access to non-fuel minerals. Area instability. The problem of access to non-fuel minerals, heavily concentrated in politically unstable areas, essentially involves southern and central Africa. Outside of the Communist bloc, no other area concentrates supplies of non-fuel minerals as heavily, especially with regard to chromium, manganese, cobalt and platinum group metals. Unhappily, this area has been. subject to political disruptions stemming from confrontation between black nationalist groups/black states and white rule in South Africa and, previously, in Angola, Mozambique and Zimbabwe (Rhodesia). Perhaps in a portent of worse things to come, on June 2, 1980, a black nationalist group, banned in South Africa, engaged in a dramatic series of attacks on that nation's sophisticated synthetic fuel facilities. Legal instability. Access to resources in areas of uncertain or disputed legal regime is a problem pertaining to the resources of the deep ocean floor (essentially "manganese nodules"), the moon and other celestrial bodies and the Antarctic continent. The deep seabed resources are being discussed at the Third United Nations Conference on the Law of the Sea (LOS). But for the uncertain legal regime, American and foreign firms are prepared to invest up to $12 billion per operation to mine the manganese nodules which contain manganese, copper, nickel and cobalt. Such operations, if legally and economically viable, could potentially reverse U.S. import dependence on these minerals by the end of the century. |