While reading Stephen Lacey’s excellent column on Climate Progress about Republican efforts to roll back efficiency standards for light bulbs, I was reminded of something larger that I had wanted to put together for a while.
Regulation is good for business. Not just for the consumer, not just for the environment. For business.
When responding to someone describing the regulatory “burden” placed on business, it’s easy to fall into “Yes, but the cost is worth it to protect …..”
First, never say “Yes, but” because your accepting the premise, already arguing on their terms.
For another, it’s demonstrably false. Regulation is just the rules, and it’s okay to have them. In baseball, the strike zone is not a regulatory burden, and the umpires are not parasites on the real “producers.”
Edit: Updated title having thought of something less prosaic.Let’s start with the aforementioned light bulbs.
The Energy Independence and Security Act of 2007 set efficiency standards for light bulbs. This is classic regulation – industry has to follow it. Notably, it was passed with consultation and support from the industry.
“When this bill was passed, it was passed by people who knew how to make light bulbs,” says Randall Moorhead, vice president of government affairs at Philips, a leading light bulb producer. “Everyone supported it. And since then, it’s created more choice for consumers – we have two incandescent bulbs on the market that weren’t there before.”
This regulation achieves some extremely desirable goals in the areas of energy security, consumer protection and the environment. It was so non-controversial that is passed Congress overwhelmingly and President Bush (yes W) signed it.
The American Council on an Energy Efficient Economy says that the standards would eliminate the need to develop 30 new power plants – or about the electrical demand of Pennsylvania and Tennessee combined.
Bring on the crazy. Of course, the current congress wants to repeal this regulation, because, well, because it’s a regulation, and regulations are bad. Never mind that industry was in favor of the regulation, and have tooled up to fully comply. Never mind the energy savings and environmental benefit.
So, why would an industry actually favor a regulation like this?
To escape the race to the bottom.
In the now-ubiquitous race to the bottom, each company in a market is under excruciating pressure to deliver the lowest priced item no matter how inefficient or unreliable the item’s performance, how badly the workers are treated, or how much the environment is impacted. If you (a company) won’t save costs then somebody else will, they will get to sell the light bulbs instead of you due to their price advantage, and no matter what your noble intentions, you will be out of business.
Price advantage? Shrug. That’s the just the market operating. If you can’t compete, don’t complain.
No, it’s not a regular market any more. Specific recent changes have torqued the market so that the forces, always historically present, operate on steroids. A very notable factor is that “free trade” agreements allow manufacturers to tuck the ugly away in dark corners of the world where you can’t see the birth defects or suicides when you buy your shiny new product. Produce the product in a responsible but more costly manner, and you’ll be out of business.
Another big factor, pretty easily illustrated with light bulbs, is the Wal-Mart syndrome. This is the environment where consumers who have been harshly economically stressed are presented with low selling prices as the single and most important thing, the only thing, that matters. No information about quality or total cost of ownership. In this vicious cycle, an unemployed or underemployed person will choose the $1 light bulb that eats $5 a year in electricity over the $2 light bulb that uses $3 of electricity a year. In this environment, a 6 month payback is “long term.” When you’re broke, it really is.
So a manufacturer of light bulbs literally can’t even try to deliver gains in efficiency unless a level playing field is established. Back to Lacey’s column:
The reality is, the new incandescent lights were not being made because there was not an economic incentive to make them.
Once you start looking, it’s hard to miss the cases where, absent regulation, companies have to do literally anything, even let people die, in order to survive in their market. That’s no exaggeration. Take, for example, the recent estimates of lives which will be saved due to the recently finalized rules on air pollutants from coal power plants (ht – diaries by Mary Ann Hitt and TomP)
EPA estimates are:
The Cross-State Air Pollution Rule will protect communities that are home to 240 million Americans from smog and soot pollution, preventing up to 34,000 premature deaths, 15,000 nonfatal heart attacks, 19,000 cases of acute bronchitis, 400,000 cases of aggravated asthma, and 1.8 million sick days a year beginning in 2014 – achieving up to $280 billion in annual health benefits
$800 million projected to be spent annually on this rule in 2014 and the roughly $1.6 billion per year in capital investments already underway as a result of CAIR..
The new regulation will save 34,000 lives a year at a cost of $2.4 billion a year. We can do this math. $70,588 spent per life saved (completely setting aside all the other health benefits). Sounds like a good and extremely cost-effective regulation.
But consider the flip side, which is where it gets frightening. These health impacts are known, and they have been known in some version, for a long time. Yet, the affected industry would not even consider voluntarily spending $70,588 to save a life. They have to wait until a regulation drags them in to doing it. Why?
I believe it is some combination of not just the extreme competitive pressure that now exists everywhere, but a cultural lock-in that celebrates that pressure as something that will magically bring good things. It creates a situation where an executive at a power company would not be allowed to consider spending extra money, even to save lives, unless everyone in the industry is forced to do the same.
Still, it’s unbelievable. How could any person in touch with his or her humanity knowingly authorize a budget that excludes investments that could save lives at this bargain rate of $70,588 per life, simply because the exact identity of the people saved is not known? If they are the ones who get the Box test, I guess we’re all doomed. Part of it must be fear. Fear of getting canned for doing the right thing, fear of losing out, fear of not winning. In some considerable number of cases, it must be that it really is impossible to do what's right, for insurmountable legal, economic, and cultural reasons.
The following bizarre chain of reasoning forces almost everyone in big business to the very edge of what is legal, every time:
- If it is not expressly prohibited, then it is legal.
- If it is legal, then it is a legitimate business choice
- If you don’t make that choice, you will lose advantage
- If someone else takes that advantage, you will be driven out of business
This is made even worse by the commonly held perception that a company has a legal obligation (to shareholders) to maximize profits. I can’t imagine that’s a real law – a company is surely obligated to do what its charter states, where making a profit may be one of the missions. [I looked for a reliable reference to the alleged lawsuit brought by Ford stockholders when Henry Ford increased worker pay to $5 a day, and found lots of discussion of lawsuits, but not about this topic. The closest I could find was
What is the solution? You got it – regulation. A good regulation, designed to achieve specific goals such as reducing illness and death by air pollution as above, creates a level playing field where people in a business can make good decisions that align their profits to serving their customers and community.
Further, businesses are customers too. Just like an individual consumer, a business should have a reasonable expectation that their suppliers will not rip them off with shoddy or unsafe products, hidden fees, or any of the shenanigans that regulation should protect us from. So, regulations help businesses in exactly the same way that they help consumers.
So why have some businesses and business associations like the US Chamber of Commerce worked so hard to build the ideology that all regulation is bad? There are a bunch of reasons, which starts with the fact that lack of regulation provides huge benefits for the most unethical businesses. If you are one of those, if there is no limit to the harm you are willing to cause in order to get ahead, you stand to benefit from the race to the bottom. I think that other businesses have been seduced by the idea that regulation harms them. Remember when US auto manufacturers succeeded in stopping any increases in mileage standard for a couple of decades, and then imports came in and cleaned their clocks selling cars with better mileage? I guess that didn't work out so well for the anti-regulators in that case.
Are there regulations that are needlessly complex or stymie one business to benefit another? You bet. And, there have been since the guilds of the middle ages and before then. There will always be scope to streamline and clarify regulations so that the actual goal of the regulation (say, reducing air pollutant emissions or achieving an energy efficiency goal) is front and center, rather than being ruled by the little bits of paper (or little bits of pdf or xml, these days). What you can do:
- There really are companies that do good. You can buy from them. Especially local suppliers, here are some in our neighborhood. Their economic model is that a customer (that’s you!) will recognize their efforts and be willing to spend more to get a product that has healthy and ethical origins. Beware greenwashing, where a company spends marketing dollars trying to convince you that they are socially responsible (consider ads by ExxonMobil about all the great things they do with the pennies and nickels that drop down through holes in their pockets from time to time).
- A boycott is a totally legitimate choice in a case where you believe that a company is doing wrong. Never be swayed by arguments that you will only hurt the lower level employees at that company. Spend the same money but spend it elsewhere, and you’ll help someone else keep their job.
- Do the math! If you can possibly afford it now, buy the better, more efficient product that will save you money, often as quickly as within a few months. Often this is the product that was made in a more responsible manner.
- Hunt down the information so that you really can do the math. Often it’s not at the store but instead is online. When you get a better deal, you are not only helping yourself but you are doing your civic duty by rewarding quality suppliers and starving shoddy ones.
- Never, ever, accept the paradigm that regulation is inherently bad. Not in conversation, not in a forum. Not in a boat, not with a goat. Sure, a specific regulation can be bad (craft beer in Wisconsin, anyone?), but each one really does have to be considered on its merits.
- In your community, advocate for real application of regulations and required permits. They are NOT a “burden”, they are your chance to protect your family and neighbors.