July 26, 2011 The Great Regulator” Making U.S. Less Competitive

Volume 14 | Issue 2

The “Great Regulator” is an abstract concept, but the National Association of Manufacturers (NAM) believes it deserves a solid national monu

Washington, D.C. – a city of memorials. Plaques and statues honor great men and women, mark historical achievements and sacrifices, and pay tribute to America’s ideals.

Yet no statue has been erected to mark the powerful governmental force flowing from our nation’s capitol – a force that, for better or worse, has changed the fundamental nature of the country and U.S. manufacturing. Presidents, lawmakers, generals and other leaders have been memorialized. But where is the heroic bronze statue for the “Great Regulator”?

The Great Regulator has made important contributions to public safety and health and environmental protection, and it has ameliorated the extreme risks that accompany modern industrial societies.

That’s the positive. Unfortunately, the Great Regulator also carries out an aggressive agenda of expanded federal control. The billions of dollars it adds to U.S. business operations cannot be justified by any reasonable cost-benefit analysis. Manufacturers, especially smaller companies, bear a disproportionate share of ever-rising government-imposed costs. If ever a statue is erected to honor the Great Regulator, manufacturers know what should be chiseled into its plinth: “The Great Regulator – Making the United States less competitive.”

Tough words, true; and a left-handed honor – and Democratic and Republican administrations equally share responsibility for this unhappy excess. Only a bipartisan commitment from both the executive and legislative branches will bring reason to the rule-making process.

Regulations, specifically involving pollution abatement, have always figured as a competitive disadvantage for U.S.-based manufacturers, according to a series of “cost studies” conducted by the Manufacturing Institute and the Manufacturers Alliance/MAPI. The latest, issued in 2008, reported: “Regulatory compliance was an area of serious concern identified in the original 2003 cost study, and a series of careful empirical studies indicated that compliance costs for business regulations exceeded $160 billion annually for manufacturers by 2004 – equivalent to a 12-percent value-added tax.”

Add this “regulatory tax” to other competitive disadvantages (notably, the U.S. now has the world’s higher corporate tax rate) and one readily recognizes the need for the United States to adopt a national strategy to elevate competitiveness as a policy priority.

According to the U.S. Small Business Administration’s (SBA) Office of Advocacy study released in September 2010, overall, the annual cost of federal regulations rose to more than $1.75 trillion in 2008. The report (“The Impact of Regulatory Costs on Small Firms”) analyzed data through the end of the George W. Bush Administration, leaving the costs of the Obama Administration’s even more expansive regulatory agenda for future study. The figures through 2008 are shocking enough:

• Had every U.S. household paid an equal share of the federal regulatory burden, each would have owed $15,586 in 2008.
• The portion of regulatory costs that falls initially on businesses was $8,086 per employee in 2008.
• Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations. As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, 36 percent higher than the regulatory cost imposed upon large firms (those with 500 or more employees).
• The disproportionate burden on small firms is most dramatic in the manufacturing sector; the compliance cost per employee for small manufacturers is more than double the compliance cost for medium-sized and large firms.

Manufacturers are affected by regulations in many areas: workplace safety, transportation and freight, and financial regulation, to name just a few. However, environmental regulations come to the fore.

The SBA Office of Advocacy report documented what manufacturers know from their own experience: Costs of environmental regulations fall most heavily on the manufacturing sector (54 percent). Another 45 percent falls on the extractive and energy sectors, including coal and ore mining, oil and gas extraction, coal gasification and electric utilities.

No wonder manufacturers are alarmed by the Obama Administration’s hyper-aggressive agenda of environmental regulation, which has turned the Environmental Protection Administration (EPA) into the most powerful (non-defense) federal agency in our nation’s history.

Last session Congress explicitly rejected legislation to establish a cap-and-trade system for controlling greenhouse gas emissions, recognizing the enormous economic costs and lack of any real benefit when other countries are actually increasing their use of coal, oil and natural gas. Global warming is, by definition, a global phenomenon that demands multilateral action.

Yet the EPA now claims the authority to regulate carbon dioxide and other greenhouse gases under the Clean Air Act. Congress never contemplated giving any Executive Branch agency such enormous power when it passed the Clean Air Act in 1970. Who could imagine regulating the byproduct of human respiration (CO2)? And back then, global cooling was the big environmental fear.

The EPA marches on, starting with plans to control greenhouse gas emissions – at first only from new refineries and coal-fired power plants. The strategy is obviously political; it targets just a few large emitters before moving on to other sectors. If the EPA can regulate carbon dioxide, it can regulate all economic activity.

The prospect of EPA greenhouse gas regulation is so disturbing that it has pushed other parts of the agency’s regulatory overkill out of the media and public eye. Yet manufacturing also faces a barrage of new regulations imposing enormous costs in such areas as industrial boilers (Boiler MACT), power plant emissions (Utility MACT), commercial and industrial solid waste incineration units (CISWI), surface waters, and coal mine ash.

In 2008 and 2009, the Bush Administration’s EPA pushed through new National Ambient Air Quality Standards for ground-level ozone to reduce the limits to 75 parts per billion (75 ppb). The limits will add billions of dollars in costs to manufacturing while doing little if anything for public health. Yet before those new and onerous limits even went into full effect, the Obama Administration brought forth its own, even more excessive proposed rules meant to reduce smog, lowering the air quality standard to a range between 60 and 70 ppb.

As 26 state business and manufacturing groups wrote EPA Administrator Lisa Jackson in March 2010, the EPA’s proposal would cause severe economic harm. “Lowering the existing 75 ppb standard to the lower end of the proposed range of 60 ppb would result in almost tripling the number of counties being designated as being in violation of the Clean Air Act (CAA)” they wrote. “Designating an area as being in violation (or in “nonattainment’) moreover, leads to new mandates and costs under the CAA, including additional control requirements for manufacturers, the need for new business to undergo nonattainment New Source Review permitting, and the imposition of financial penalties in areas failing to meet the new standards. All these actions will discourage new businesses from locating in nonattainment areas and restrict the growth of existing businesses.”

A study of the proposed rule by the Manufacturers Alliance/MAPI put the stakes in sharp terms: More than seven million jobs would be lost by 2020 if the 60 ppb standard were put into effect, a figure equal to 4.3 percent of the projected 2020 labor force. (“Economic Implications of EPA’s Proposed Ozone Standard,” September 2010.)

The National Association of Manufacturers (NAM) and other associations representing affected industries are resisting the EPA’s overregulation on numerous fronts. We pushed Congressional candidates in the 2010 elections to address the issue and are working with the House and Senate to bring restraint and economic rationality to the regulatory process. Our groups are also pursuing litigation in federal court where appropriate.

In March, the NAM renewed its “Affordable Energy Campaign” to organize manufacturers and the public against EPA overregulation and to support development of the U.S. domestic energy resources. The website’s name – www.NoNewRegs.org – tells the story.

Congress is paying attention, and for good reason. For all the parts per billion, attainment standards, and New Source Reviews involved in the debate about overregulation, two powerful yet simple issues concern – or should concern – the nation’s policymakers: jobs and competitiveness.

President Obama, too, seems to sense the public’s resistance to regulatory overkill. In January he issued an executive order, “Improving Regulation and Regulatory Review,” calling on agencies to give more serious consideration to jobs and growth when developing rules. Obama also instructed agencies to conduct a retrospective review of their regulatory activities. Manufacturers hope this is a serious effort, but the EPA’s continued activism suggests otherwise.

Manufacturers are leading U.S. economy recovery, adding thousands of jobs every month, making new investments and driving growth with exports. Every dollar spent on unnecessary or counterproductive regulations is a dollar diverted from putting new workers on the payroll.

NAM is proud to declare that manufacturing means jobs. Can the Great Regulator say the same?

No, it’s not the regulatory state that creates jobs, inspires innovation, or deserves credit for having built the greatest manufacturing economy in the world. If statues are to be built, then let them honor America’s entrepreneurial spirit, the business owner who takes risks, shareholders who invest, and the workers who make the products.

Better to pay tribute to the Great Manufacturer than the Great Regulator.

Jay Timmons is president and chief executive officer CEO of the National Association of Manufacturers (NAM), a powerful advocate for the nearly 12 million workers engaged in the American manufacturing sector. The largest U.S. manufacturing association, NAM seeks to foster a stronger economy by enhancing the competiveness of American manufacturers. To learn more about the organization, visit www.nam.org.

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