The implication of these cases is that administrative rule-making which involves criminal penalties is an

area of concern to Congress and possibly an area in which only Congress can constitutionally act. In either event, H.R. 3658 is a valid means of protecting this interest. If Congress alone can act in this domain, there is no separation of powers problem at all, since the proposed administrative rules would have no effect on their own.

The New Wave of Government
Regulation of Business

Reprinted from Business and Society Review, Fall 1975

Murray L. Weidenbaum

There is a striking but little-noticed parallel between the standard liberal concern with governmental infringement on the civil liberties of individuals and the rising conservative concern with governmental infringement on the freedom of individuals acting as business executives. The first target is often termed "Big Brother." The second could be called "Big Mother."

Many liberals are outraged by the arbitrary "no-knock" powers of federal investigative agencies, yet they readily ignore the unchallenged no-knock power used by other federal agencies in their regulation of private business. Federal inspectors are an increasingly important physical presence in private industry. The Supreme Court has ruled that air pollution inspectors do not need search warrants to enter the property of suspected polluters as long as they do not enter areas closed to the public. The unannounced and warrantless inspections were held not to be in violation of constitutional protections against unreasonable search and seizure.

The inspectors of the Labor Department's Occupational Safety and Health Administration (OSHA) can go further. They have noknock power to enter the premises of virtually any business in the United States, without a warrant or even prior announcement, to inspect for health and safety violations. Jail terms are provided in thre OSHA law for anyone tipping off a "raid."

Federal regulatory agencies do not always feel obliged to follow normal standards of fairness in dealing with business firms. Consider the possibility of biased decision-making inherent in the recent agreement between the U.S. National Institute for Occupational Safety and Health (NIOSH), the agency that does the basic research underlying new OSHA regulations, and the Amalgamated Clothing Work

ers.

Under the agreement, the official federal study of safety and health hazards in the clothing industry is being conducted by a union

Murray L. Weidenbaum, a former bureaucrat himself (he was once assistant secretary of the treasury), is now director of the Center for the Study of American Business at Washington University in St. Louis, and an adjunct scholar of the American Enterprise Institute.

employee and financed by the union. In the words of the OSHA publication which enthusiastically reported the undertaking, "The union will help obtain the cooperation of plant managers." It is painful to try to picture the reaction of a company management to the investigation of its premises by its union on behalf of the government!

The New Model of Government Regulation

The traditional notion of government regulation of business is based on the model of the Interstate Commerce Commission: A federal commission is established to regulate a specific industry, with the related concern of promoting the well-being of that industry.

In some cases-because of the unique expertise possessed by the members of the industry, or its job enticements for regulators who leave government employment-the regulatory commission becomes a captive of the industry it is supposed to regulate, and the public or consumer interest is subordinated or even ignored. At least, this is a popular view of the federal regulatory process. In addition to the ICC, other agencies which have been criticized on this ground include the Civil Aeronautics Board, the Federal Communications Commission, and the Federal Power Commission.

Although that type of federal regulation of business surely may continue, the new regulatory efforts established by the Congress in recent years generally follow a fundamentally different pattern. The new federal agencies are broader in scope than the ICC-CAB-FCCFPC model. Yet in important aspects, they are far more restricted. In the cases of the Environmental Protection Agency, the Equal Employment Opportunity Commission, the Consumer Product Safety Commission, the Federal Energy Administration, and the Occupational Safety and Health Administration, the regulatory agency is not limited to a single industry. Their jurisdictions extend to the bulk of the private sector and, at times, to the public sector as well. It is this far-ranging reach that makes it impractical for any single industry to dominate these regulatory activities in the manner of the traditional model.

Yet, in comparison to the older agencies, the newer federal regulators, in many important ways, operate in a far narrower sphere. That is, they are not concerned with the totality of a company or

industry, but only with the segment of operations which falls under their jurisdiction. This limitation prevents the agency from developing too close a concern with the overall well-being of any company or industry. Rather, it may result in total lack of concern about the effects of its actions on a specific company or industry.

If any special interest may come to dominate such an agency, it is the one that is preoccupied with its specific task-environmental cleanup, elimination of job discrimination, establishment of safe working conditions, reduction of product hazards, and so forth. Thus, the basic mission of the industry to provide goods and services to the public may get little attention. And matters broader than the specific charter of the regulating agency-such as productivity, economic growth, employment, effect on overall living standards, inflationary impacts-also may be ignored. At times the process may seem to be epitomized by the proverbial dentist who sees his patient as merely two rows of teeth surrounded by a mass of miscellaneous material.

The result may be a reversal of the traditional situation. Rather than being dominated by a given industry, the newer type of federal regulatory activity is far more likely to utilize the resources of various industries, or to ignore their needs, to further the specific objectives of the agency. My personal study of the activities of these new regulatory agencies reveals many negative aspects of considerable importance.

I do not quarrel with the intent of the new wave of federal regulation: safer working conditions, better products for the consumer, eliminating discrimination in employment, reducing environmental pollution, and so forth. And the programs established to deal with these problems have at times yielded significant benefits. But no realistic evaluation of government regulation comfortably fits the notion of benign and wise officials making altogether sensible decisions in the society's greater interests. Instead we find waste, bias, stupidity, concentration on trivia, conflicts among the regulators, and, worst of all, arbitrary and uncontrolled power.

The agencies carrying out federal regulation are proliferating. In the past decade alone we have seen the formation of the Consumer Product Safety Commission, the Environmental Protection Agency, the Federal Energy Administration, the Cost Accounting Standards Board, the National Bureau of Fire Prevention, the Mining Enforcement and Safety Administration, the National Highway Traffic Safe

ty Administration, and the Occupational Safety and Health Administration, to cite the better-known ones.

The administrative cost of this army of enforcers (approximately $3 billion a year to support a regulatory work force in excess of 74,000) is quite substantial (see table on page 5). But that expense is only the tip of the iceberg. It is the costs imposed on the private sector that are really large, the added expenses-which inevitably are passed on to customers-of complying with government directives. A direct cost of government controls is the growing paperwork burden imposed on business firms: the expensive and time-consuming process of submitting reports, making applications, filling out questionnaires, replying to orders and directives, and appealing some of the regulatory rulings in the courts. There now are 5,146 different types of approved government forms. Individuals and business firms spend millions and millions of work-hours a year filling them out.

Another hidden cost of federal regulation is the reduced rate of technological innovation. The longer it takes for some change to be approved by a federal regulatory agency-a new product or a more efficient production process-the less likely it is that the change will be made. A recent case is the new asthma drug beclomethasone dipropionate (let us call it BD). Although this drug has been used by millions of asthma patients in the United Kingdom, it still has not received the approval of the U.S. Food and Drug Administration. BD is described as a safe and effective replacement for the drugs which are now administered to chronic asthma patients, but without the adverse side effects of the drugs now in use in the United States. Unlike BD, the steroids currently used in this country, such as prednisone, can stunt growth in children, worsen diabetes, and increase weight through water retention. The delaying procedures of the FDA not only are increasing costs to drug manufacturers, but also are preventing American consumers from having access to BD.

The large private costs of government regulation sometimes arise from the attitudes of the regulators. Take the question of industrial noise. Reluctant to depend on earplugs and similar hearing protectors, EPA and OSHA are mandating extremely expensive engineering changes. The cost to industry of achieving the current ninetydecibel OSHA standard is estimated at "only" $13 billion. EPA, however, is attempting to obtain a quieter eighty-five-decibel level, at an estimated cost of $32 billion.