Regulation and Productivity by John Hospers

[Stephane Budge]

People don’t enjoy having their lives regulated, whether they are
children rebelling against parental commands or adults whose actions
are subject to legislation by government. Still, don’t we need
regulators with coercive power such as only government has? What would
happen if everyone could, without penalty, forge checks, violate
contracts, dump poisonous wastes into the soil, and manufacture cars
that are accident-prone? The market sometimes regulates itself, but
not always: people will often profit by causing injury and damage to
others.

The problem is that the watchdogs themselves are imperfect. They are
vulnerable to bribery and corruption, and most of all, operate with
gross inefficiency. Moreover, those who are entrusted with positions
as watchdogs often have an inordinate desire to increase their own
powers. Regulating others often gives them more satisfaction than
their income does, and they spare no effort to keep on increasing
their own regulatory powers. And often nobody watches the watchers.

I shall present three examples, deliberately taken from a diverse
array of activities, to illustrate how this problem affects the
business community.
1. Environmental Regulation

Not many people set out to make their natural environment dangerous
for human habitation, or desire to render entire species of living
things extinct. Laws are enacted to inhibit those whose actions have
this effect. Today, however, regulations have become so all-
encompassing that no business and no landowner could long survive if
all the regulations now on the books were strictly enforced. For
example, there are countless underlings in the Departments of Interior
and Agriculture who are empowered to say to farmers, “That mud puddle
in your back field is hereby declared a wetland,” thus making it no
longer permissible for farmers to cultivate such land although they
still continue to pay taxes on it.

Thousands of letters were sent out in 1993 from the Bureau of
Reclamation of the Department of the Interior, informing the
recipients that the Bureau intended to look for endangered species on
their land. What if the landowner refused to permit such inspection?
Then, since the absence of endangered species could not be confirmed
by inspection, uncultivated parcels would be labeled as habitat for
endangered species.

What happens if a piece of land is declared a habitat? Strict controls
on use then come into play. “When the U.S. Fish and Wildlife Service
had designated a habitat-study zone, one family lost $60,000 worth of
production a year.”[1] Since the zone is off limits to crops, a farmer
cannot replant there. Moreover, banks no longer will make loans to buy
such properties because they are aware that the buyer will not be able
to use the land for planting crops.

Congress passes a law; the “beef” in the law is the enabling clause
which permits the regulatory agency to make whatever regulations it
deems necessary and proper to implement the law. Those who are
subjected to the regulations must obey every one, however trivial or
burdensome, or else receive large fines or even jail sentences.
Usually the act is applied by its enforcers beyond the scope of what
was envisioned when the law was passed. Already every landowner is
subject to the intricately detailed provisions of the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act, the Endangered
Species Act, the National Environmental Policy Management Act, and so
on. They are drowning under a flood of regulations, from which the
only benefit may be to the regulators, keeping them in well-paid
positions at the expense of the taxpayers.

The mission of the national Biological Survey is “to catalog
everything that walks, crawls, swims, or flies around this country.”
To do this their agents must be able to enter every parcel of land in
the United States—not every decade, as with the census, but on a
continuous basis. “Landowners fear that the net effect will be to
transfer de facto control of thousands more acres to the federal
government.”[2]
2. Housing Regulations

In past decades, prior to the massive interference of the federal
government, inexpensive housing was far less of a problem than it is
today. Cheap rooms could be had, for a dollar or two a week, with no
particular amenities and perhaps a bathroom down the hall shared by
several tenants.[3] But in most cases American cities these “flop-
houses” facilities were torn down: “We can’t have people living like
that.” The government tore down the building and built other ones at
much higher cost. Most of those who had previously occupied these
buildings could not afford the new ones.

To limit the cost to tenants, rent control measures were initiated,
but of course such controls only prevented new housing from being
built, and massive shortages developed. Who wants to risk losing money
on real estate in New York City? Landlords who can sell do so at a
loss and get out.

But rent control is only the most notorious form of regulation. In
most states it is illegal to refuse to rent a room or apartment to
someone because he or she is a welfare recipient: the ultimate threat
of the renter whose every whim is not satisfied is “I’ll report you to
the Welfare Board and then you’ll never be able to use your buildings
for rental again!” It is a pervasive desire of landlords not to rent
to welfare recipients; in general, owners say, they have little sense
of responsibility; they are “all rights and no responsibilities.” Many
tend to be slovenly and messy in their personal habits; they demand
privileges not in the contract; they leave lighted cigarettes where
there are no ashtrays, and leave the flushing of toilets to lesser
beings. Landlords do what they can to avoid renting to them, but if
they say “I’m evicting this person because she has dirty habits” they
will be told “No, you’re trying to evict her because she’s on welfare,
and that won’t work.”

New regulations are constantly introduced to make ownership of rental
property more burdensome. Every door (in some states) must be equipped
with a large metal rod on a spring so that it will automatically close
in case of fire. (This costs about $50 per door.) With new regulations
being continuously enacted, the landlord’s margin of profit, already
precarious, often disappears entirely. Moreover, it profits the
tenants to break some pipes or destroy some electrical fixtures
because they don’t have to pay rent until these are repaired.[4]

Meanwhile a new state law (in Minnesota,for example) specifies that if
the owner does not pay his entire property tax in the year it is due,
the entire property can be confiscated the following year. (What
happens if the owner has a bad year? The government confiscates the
property, and may operate it at a loss, payable by taxpayers.)
3. Mining

In a recent Roper public opinion poll, people were asked their opinion
of each industry. Of 222 industries, mining ranked next to last; only
tobacco fared worse.[5] But mining was, and is, more heavily regulated
in the United States than in any other industrial nation.

Mitsubishi Corporation of Japan decided to build a new copper smelter
in Texas City, Texas. Japanese officials were assured by state and
federal officials that all the relevant permits would be issued in 12
to 18 months. The first application was submitted in June of 1989.
Then came three years of conflict among environmental groups,
permitting agencies, and company management. Air-and-water discharge
permits had to be obtained; the U.S. Army Corps of Engineers had to
issue its own permit; and an assortment of permits from state, county,
and city agencies were also required—more than thirty in all. The Army
Corps of Engineers promised a decision within sixty days, but waited
21 months.

Exhausted by the attrition, Mitsubishi finally cancelled the project.
The new chairman of the Texas Water Commission said that when his
permit came up for review in four years he would demand zero discharge
of waste water—technically a virtually impossible demand. The air
discharge permit from the Texas Air Control Board would take most of a
year; building the plant would take another two years, and less than a
year after that the company would be faced with the zero-discharge
requirement. For these reasons Mitsubishi abandoned the project in
March of 1992. They decided to build the identical copper smelter in
Japan, where all the required permits were obtained in 14 days and the
plant was built in 17 months. The president of Key Metals and Minerals
Engineering Corporation, Dr. Thomas Mackey, wrote, “This action ended
a marvelous opportunity for the U.S. to acquire a minimum-pollution
energy-efficient modern copper smelter which would have been
strategically located on the Gulf of Mexico’s coast . . . .”[6]

As a result of this and numerous similar incidents, Japan is ahead of
the United States in the development of mining technology. For many
years the United States was a net exporter of copper. Today the United
States has been surpassed in copper production by Chile. Gradually we
are becoming non-competitive.

In 1992 the Congress passed a bill which may seem trivial by itself,
but taken together with a mass of similar ones, is a significant straw
in the wind on the future of mining in America. As a result of the new
legislation, whenever your company buys an electric motor you are now
required to buy “the most efficient” one: 96 percent efficiency is now
mandated, whereas the earlier requirement was 94 percent. So what, one
might say what’s a difference of 2 percent? The catch is that it must
be 96 percent-efficient when operating at full speed. The 96 per-cent-
efficient motor is more efficient at full speed, but it has less
starting torque. In fact a conveyor belt could never get started with
the newly required motor. But since the 94 percent-efficient motor is
no longer permitted, users must now go from a 96 percent-efficient
motor of 100- horsepower to one of 200-horsepower, just to get the
motor started.

Once the 200-horsepower motor is running, it doesn’t require all that
extra energy it can easily do with 100. But since the 100-horsepower
motor that would do the job is now outlawed, it is necessary to use
the 200. The extra energy is wasted, but no other option exists that
is not illegal. By contrast, Japan can still use the 94 percent-
efficient motor. American equipment will be more inefficient and more
expensive, thanks to many laws such as this one.

The new law does not save energy—it requires industry to waste energy.
It does its bit to make the United States non-competitive. It is
assisting the gradual process of de-industrializing America.
Conclusion

Regulation—actually, more suitably called “prohibition” of limited
scope is necessary to prevent people from harming other people that
is, when one person or group would otherwise violate the rights of
others. But the vast majority of today’s regulations are not of this
kind, but could better be called regulation for regulation’s sake. It
is these that are eroding America’s industrial base and making the
United States increasingly non-competitive in the world economy.

It was not always so: America today would be unrecognizable to those
who lived here a century ago, thanks to the labor and ingenuity of
many thousands of productive individuals—inventors, manufacturers,
merchants, farmers, and countless others employed by them and
associated with them. But in the last half century an opposing force
has gathered momentum, threatening to bring these productive advances
gradually to a halt. The conflict is between those who have created
this vast array of goods and services, and those whose aim is to
control the creators. Will the economies of other nations, not as
burdened as ours by harassing regulations, replace the United States
as the economic leaders of tomorrow? At present it is far from clear
what the outcome will be.