coalition for
regulatory innovation

March 28, 2018

Graham: Let’s tilt balance toward fostering entrepreneurs

This piece originally appeared in the Fort Wayne Journal Gazette

John Graham was administrator of the Office of Information and Regulatory Affairs under President George W. Bush and is now dean of Indiana University’s School of Public and Environmental Affairs.

There isn’t much agreement in Washington, D.C., these days. Our national political debate has been hijacked by partisanship, breeding a reluctance to work together to solve our nation’s problems.

Yet Democrats and Republicans have an opportunity to come together to simplify and modernize the complex web of regulations that govern daily life. Doing so will lower the cost of doing business in Indiana and stimulate the economy just as effectively as a tax cut – putting dollars back in the accounts of entrepreneurs who want to invest in their community and create new job opportunities for their neighbors. But unlike a tax cut or other economic stimulus, reforming the regulatory process will not put our nation’s deficit further into the red!

There are several promising bipartisan collaborations in Congress on regulatory reform. Speaker Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., are sponsoring complementary bills that would improve the ability of federal agencies to measure the effectiveness of programs. Sen. James Lankford, R-Okla., and Sen. Heidi Heitkamp, D-N.D., are co-sponsoring the Early Participation in Regulations Act of 2017, which will improve regulatory transparency by increasing opportunities for public participation and scientific evidence in rulemaking.

Indiana is considered the No. 1 state in the Midwest for conducting business. Our state’s economic growth in 2018 is forecast to outpace the national trends, and businesses in neighboring states frequently relocate here to benefit from our economic and regulatory climate.

Many of the key sectors of the Indiana economy need to be regulated by the federal government for the public good: pharmaceuticals, medical devices, autos, agriculture and biofuels. But federal regulations also need to be grounded in sound science and based on a careful comparison of regulatory alternatives.

In a recent report published by the American Council for Capital Formation, I found that small businesses face an outsized burden from the numerous regulations issued by the federal government each year. These rules effectively act like a tax that deters entrepreneurial activity – small companies just starting out simply don’t have the capital to spend on regulatory costs in the way that large, more established businesses do.

In the last 20 years, federal agencies have issued 34 new rules with compliance costs of $1 billion or more. That is billion with a capital B! Some of these regulations are justified by impressive benefits (e.g., environmental protection); others are not. And sometimes the evidence used by agencies to support regulation is not clear as to how the evidence was derived or how uncertain the evidence is.

During my time as the head of the White House Office of Information and Regulatory Affairs, one of my main priorities was to ensure that rules were instituted based on a rigorous cost-benefit analysis. I insisted that any new regulation provide benefits to society that justify the costs. Even if some of the benefits and costs could not be quantified, the discipline of cost-benefit analysis helped regulators make thoughtful decisions.

A good example where smart regulation is needed is self-driving cars. If regulations are designed well, the risks of self-driving cars will be minimized while thousands of lives will be saved each year from poor driving habits such as distracted and drunk driving. But if we overregulate this promising new technology, we may delay lifesaving innovation for decades. Good regulation weighs risks, costs and benefits and recognizes the value of innovation.

Put simply, if America is to maintain global leadership and entrepreneurial advantage, we must adopt new policies to rationalize the regulatory burden on our small businesses. The state of Indiana has much at stake in the regulatory reform debate. Now is a good time to bring the parties together on this issue.