The high cost of deregulation
The high cost of deregulation Would you trust your health and safety to Mobil? Have you heard the drums beating? The war on regulation is on. Business declared it, Carter's Administration...
...If the overall regulatory effort creates uncertainty for business, then total private investment, and hence total employment, may be reduced...
...Similarly, anyone who rides in automobiles and breathes air probably values safe cars and clean air over the financial health of Chrysler and American Motors...
...The Pinto was produced without the modification...
...They contended that their efforts to establish and enforce anti-pollution laws were being seriously compromised by the anti-inflation efforts of the White House...
...Many of its victories came in areas where the opposition's constituency was relatively weak...
...Apparently no powerful, organized group existed to defeat the group on these issues, whereas the unions lobbied hard on brown lung disease...
...Much is at stake in the battle for a healthy living and working environment...
...In 1978, the Carter Administration created the Regulatory Analysis Review Group, or RARG, to spearhead Administration efforts to "reform" the regulatory process...
...To Barry Felrice, an official of the National Highway' Traffic Safety Administration, the former Chrysler executive's assessment was right on the mark: "My impression after reading the document is that most of it came right from auto industry spokesmen...
...Its major concern was explained by Schultze: "Efficient regulation requires economic analysis and attention to cost...
...To base regulation on cost-benefit criteria provides an arena for business to launch effective political fights around every regulation...
...Adding up these sums, plus the cost of damage to vehicles, Ford arrived at total benefits from the proposed modification of $49.5 million, while the total cost of modifying 12.5 million Pintos was $137 million...
...Each life lost was valued at $200,000, and each serious injury at $67,000...
...Therefore, the direct effect of pollution control efforts on employment to date appears to be positive rather than negative...
...Karl Braithwaite, then staff director of the Senate Environmental Pollution Subcommittee, said the procedures the memorandum called for "would probably kill the program procedurally and certainly kill it substantively...
...A top Ford executive once criticized the Japanese for insufficient attention to air quality in their country...
...Deregulate business...
...The trend toward evaluating regulations in cost-benefit terms is contrary to the intent of Congress when it passed the 1965 and 1970 amendments to the Clean Air Act...
...back the clock to the detriment of today's standard of living...
...Together, the two projects cost more than $3 million a year...
...But a deregulation offensive has begun in earnest...
...Evidence suggests that GM actually strives to keep Chrysler and American Motors in business, to provide a fig-leaf of "competition," by keeping prices high enough to cover the smaller firms' higher costs...
...Regulations to protect the few remaining regions of pristine air and to make public transit facilities more accessible to the handicapped were both cut back by RARG interventions...
...They raise costs to business by restricting use of the atmosphere, rivers, and oceans as free dumping grounds...
...He also placed a sixty-day freeze on all regulations issued recently by executive agencies...
...Mobil Oil, for example, launched its op-ed advertising campaign in The New York Times in 1970 in response to prevalent "misunderstandings" about capitalism...
...They claimed the regulations would be "prohibitively expensive," and that a cost-benefit analysis was required...
...Similarly, environmental regulations may lead to higher prices, but also to better products...
...In contrast was a 1979 memorandum from Schultze and Alfred E. Kahn, President Carter's chief inflation adviser, to the EPA, asking for a review of the cost of pending water pollution regulations...
...In overturning the standard the court majority drew back from fully endorsing cost-benefit analysis as the test of a regulation's constitutionality, arguing instead that the risk to workers' health must be proven "significant...
...In international capitalist competition, bad air drives out good...
...To supplement massive lobbying efforts in Washington, major corporations have gone directly to the public with their deregulation message...
...In June 1978, RARG economists almost succeeded in weakening Federal regulations on permissible cotton dust levels in textile plants...
...EPA officials saw the memo as another example of executive interference in the environmental regulatory process...
...To either economist or consumer, inflation means a rising price tag for a given set of goods...
...Once achieved, they are difficult to preserve—and well worth fighting for...
...It cites a report of the Council on Environmental Quality that the cost of pollution abatement from 1972 to 1981 will total $279 billion, including $106 billion for air pollution controls, $121 billion for water pollution controls, and $42 billion for solid waste treatment...
...In one advertisement, Mobil condemned regulators for "trying to turn This analysis was provided by the Popular Economics Research Group, a group of socialist economists in Amherst, Massachusetts...
...A plurality of the concurring justices, however, swallowed the cost-benefit argument whole as a valid constitutional objection to the benzene regulation...
...Although big companies may suffer from the cost and frustration of regulatory compliance, they can endure it, so the argument goes...
...No one could disagree with that assessment in theory, but in practice RARG advanced cost-benefit considerations to weaken air pollution rules and job safety measures...
...Barry P. Bosworth, former director of the now defunct Council on Wage and Price Stability, has estimated that regulation contributes between .75 and 1.5 per cent per year to the rate of inflation—hardly enough to make scrapping all our pollution control efforts worthwhile...
...Mobil advertisements now run weekly in seven daily newspapers, along with a chatty "Observations" column that presents the company's views every other week in 450 newspapers...
...Thus, individual workers would not have to bear the cost of providing a clean, healthy environment...
...Business propaganda delivered at the taxpayers' expense is not unusual, but this report may have a grain of truth...
...The fire-prevention device would cost $11 per vehicle...
...A future Reagan court may rule that controls are only permissible if the regulating agency can demonstrate that the benefits are greater than costs...
...But other incidents^—chemicals leaking at the Love Canal, flaming Pintos on the road, the continued release of dangerous products ranging from drugs to jet airplanes—remind us how much remains to be done...
...Another arrow from the corporate propaganda quiver is aimed at the decline of competition Government regulation is said to cause...
...Corporations have been forced to comply with these public concerns to some degree, and it has cost them money...
...Whether this in fact occurs is difficult to determine, but if it does, the Government could offset it with investment-stimulating monetary or taxation policies...
...After all, the Environmental Protection Agency (EPA) catalogued, between 1971 and 1978,107 plant closings which could be ascribed to the cost of controls...
...In an economic system that ties worker and consumer welfare to "business confidence" and the satisfaction of business priorities, regulatory victories are hard to come by...
...RARG did succeed in undermining other regulations...
...Since the price of regulation is paid by businesses, even the cost-benefit analyses conducted by Government rely heavily on the cost projections that companies provide...
...John Riccardo, then board chairman of Chrysler, commented, "The Harbridge House studies make a point that we've been making for some time...
...There is a precedent for such measures: Workers displaced by imports are entitled to such benefits under present law...
...The solution...
...If the arbitrarily chosen value of $200,000 for a life had been replaced by an equally arbitrary value of $1 million, the fuel tank modification would have passed the cost-benefit test...
...Business declared it, Carter's Administration mobilized forces, economists provided the ammunition, and the Supreme Court blessed the weapons...
...Only effective regulation and broader economic planning can save us from tough choices between unemployment for auto workers and safe cars for the public...
...Ominously, the judges seem increasingly certain it's in there somewhere...
...At first glance, Mobil's large-hearted push for more jobs through deregulation may seem almost believable...
...Now the Reagan camp is poised to attack...
...The staggering costs of cancer, measured both in huge hospital bills and human suffering, indicate the potential benefits of environmental regulations...
...Thus, a counterattack has been launched, intensified by growing international competition which stiffens corporate resistance to any cost-increasing regulations...
...But at the same time consumers receive a more valuable product—for example, electric power plus breathable air rather than electric power plus filthy air...
...The head of GM may like clean air as much as any of us, but his company's profits are reduced by air pollution regulations...
...Undoubtedly, environmental controls sometimes do pose a threat to particular jobs...
...For example, when Ford Motor Company discovered ten years ago that the gas tank in its new Pinto tended to erupt into flames in low-speed rear-end collisions, the company did a cost-benefit analysis of its own for a proposed gas tank modification...
...Hard numbers for projected regulatory cost, based on business-generated data, can be contrasted with seemingly arbitrary estimates of benefits...
...the emphasis is on technical feasibility...
...Wasting no time, the court has agreed to hear an industry attempt to overturn OSHA's cotton dust standard...
...Furthermore, even these price increases are probably smaller than business propaganda would indicate...
...But Ford has little power to strengthen Japanese anti-pollution regulations, so it has settled for weakening American anti-pollution regulations instead...
...The Labor Department overrode the economists' efforts...
...A steelworker laid off by an EPA-ordered plant closing is not assured of being hired by a company that manufactures pollution control equipment...
...Mobil's ominous references to "inflationary pressures" are equally misleading...
...A Boston-based consulting firm claimed that the cost of Federal safety, pollution, and fuel economy regulations-threatened to bankrupt American Motors and Chrysler, the two "small" auto companies...
...A recent Government-sponsored study of automobile regulations appeared to confirm this viewpoint...
...How such "competition" benefits the auto consumer is unclear...
...No cost-benefit analyses were done...
...Even if environmental controls were eliminated, the forces of competition are so distorted in most markets that the drop in costs would probably not bring about a drop in prices...
...Late last spring they heard arguments from industry lawyers contending that the Occupational Safety and Health Administration's standard limiting worker exposure to benzene, a known carcinogen, was unconstitutional because the agency had failed to demonstrate that the benefits to workers outweighed the costs to industry...
...Many analysts believe the passage of pure food acts early in this century contributed to the domination of meatpacking by a few giant firms...
...Business is trying to avoid paying for such "unproductive" measures...
...The business community claims the price of environmental, health, and safety regulation is too high...
...Some or all of the increased cost is passed on to consumers as a price increase...
...No matter how desirable the social goals, Mobil said, "the costs and uncertainties begotten by excessive regulation have contributed substantially to an economy that suffers a high level of unemployment even as inflationary pressures worsen...
...President Reagan has already postponed the effective date of more than 100 health and safety regulations...
...In the 1960s and early 1970s, the environmental, public health, and job safety movements won real legislative victories...
...A public battered by inflation and unemployment is vulnerable to business propaganda on this issue...
...It is not difficult to understand why business is pushing so hard for deregulation...
...without it, Ford projected 180 people would burn to death and 180 more would be seriously injured...
...Then Congress seemed to recognize that the nation's health was at stake...
...Often, seemingly arbitrary rules are employed...
...Consumers would probably lose the benefits while continuing to pay the cost of controls, as corporations continued charging all the market could bear...
...Some medical scientists have argued that most cancer cases in the United States result from environmental factors on and off the job...
...On the judicial front, the Supreme Court has lately been attempting to locate the cost-benefit article in the Constitution...
...RARG was created under the auspices of the chairman of the Council of Economic Advisers, Charles Schultze, and was dominated by economists...
...Cost-benefit analysis has a scientific facade, but there is no "scientific" way to set a price tag on human life or unspoiled wilderness...
...Some measurable gains have already been recorded: Some 200 miners' lives are saved annually as a result of the Coal Mine Health and Safety Act of 1969...
...The defenders of life and health are put on the defensive...
...But regulatory cost drives smaller companies out of business, undermining the vigorous competition that is otherwise presumed to prevail...
...These affected 22,500 workers...
...But the EPA also estimated that the pollution control business was directly responsible for creating some 75,000 jobs during the same period...
...But this brings the question into sharp relief: Who would argue for keeping all companies in business at the cost of food poisoning for consumers...
...In any event, one would be hard-pressed to argue that Chrysler and American Motors, with 14 per cent of the domestic auto market, provide much competition to Ford and General Motors...
...A shopper who switches from hamburger to porterhouse steak does not blame the rising butcher bills on inflation...
...Business has not gone into battle over regulation without allies, and among the most important of these have been economists...
...However, the Government could again resolve the conflict between jobs and a healthy environment by offering support and retraining to workers displaced by regulations...
...More of the same is sure to come...
...The 1970 amendments, in particular, show a deep hostility to cost measurement...
...Industrial wastes must be treated to render them less harmful, or production processes changed to eliminate noxious byproducts...
...The indirect effects are more complex, however...
Vol. 45 • April 1981 • No. 4
