Economic growth and environmental protection ,conventionally aim for different objectives and may often seem at odds to each other. But do they represent two sides of the same coin? Read on...
Environmental regulations vs Economic Health by Murray L Weidenbaum USA Today (Society for the Advancement of Education) / November,1994 http://www.gradewinner.com/p/articles/mi_m1272/is_n2594_v123/ai_15897226 IMPROVING the environment and economic growth are not mutually exclusive goals; however, they are not easily reconciled, either. Those who blithely maintain that environmental regulation is good for the economy because it creates jobs are deluding themselves--and the rest of society. Similarly, those who insist that ecological considerations always must be subordinated to economic concerns--or vice versa--are guilty of that tunnel vision they so frequently impute to others. By training, economists have a special interest in seeing to it that resources are used effectively, whether the purpose is ecological, political, or economic. While no environmental programs are created with the express mission to depress the economy and raise the unemployment rate, many have that effect. The barriers to economic growth imposed by regulatory agencies are numerous and expanding steadily. In 1993, the Census Bureau--hardly a citadel of right-wing ideology--issued a technical report on the effect of environmental regulation on productivity. Their conclusion: a $1 increase in compliance costs reduces productivity by $3-4. ');}// --> Not surprisingly, the business community generally talks more about the costs of regulation than the benefits, while the proponents of regulation stress the benefits and downplay the costs. After all, from the viewpoint of the average company, for each box on its organizational chart, there are one or more government agencies that are counterparts to that box, such as the Environmental Protection Agency (EPA), Occupational and Safety Health Administration (OSHA), and Equal Economic Opportunity Commission (EEOC). Each is involved heavily in the company's internal decision-making. The impact of those governmental rule-makers is in one predictable direction: to increase the firm's costs and reduce the resources available to perform its major task of producing goods and services. Government regulation results in the higher prices consumers pay to cover compliance. The expense of complying with environmental regulations amounted to about $130,000,000,000 in 1993. That is not a static figure. When they reach their stride, the Clean Air Act Amendments of 1990 will add new costs amounting to at least $25,000,000,000 annually. When the expense of meeting the rules promulgated by dozens of other regulatory agencies--ranging from OSHA to the National Highway Traffic Safety Administration--are added in, the aggregate hidden tax of regulatory costs comes to $200-300,000,000,000 a year. That is $2-3,000 per household in the form of higher prices for the items purchased. Some analysts come up with even greater numbers. Going beyond the dollar signs, more subtle and even more serious burdens become visible. Central among these are the adverse effects on research and development, productivity, capital formation, and competitiveness. Regulation has reduced the flow of innovation and production of new and better goods because so many government regulatory agencies have the power--which they frequently exercise--to decide whether or not a new product will go on the market at all. Required paperwork also produces a lengthening regulatory lag, often running into years. This is a costly drain on the time and budgets of private managers as well as public officials. A decade ago, a California land developer could obtain zoning for a typical residential development within 90 days. Currently, it takes an average of two years of intensive work to attain an entitlement to build there. Opening up new production facilities involves surmounting an even greater array of regulatory obstacles. A company must obtain agreement from dozens of agencies at each of the three levels of government--local, state, and Federal. A single "no" anywhere along the line can halt years of planning, effort, and investment. Higher regulatory costs have reduced the competitiveness of many American companies struggling in an increasingly global marketplace. That translates into fewer jobs and lower incomes for U.S. residents. American firms facing worldwide competition often seek overseas locations with more benign regulatory systems. Instead of exploring in the U.S., American oil firms are investing in faraway Kazakhstan. A word of warning about the argument that regulation creates jobs: meeting EPA requirements means more work for workers in the environmental control industry and for lawyers and others assigned to compliance activities, but factories that have less money left to invest in new equipment do not generate more employment. They wind up with fewer productive jobs. Environmental regulation can be costly and still be justified, if it produces significant benefits to human health or a sound ecology. However, many regulatory programs chase after the most remote hypothetical hazard. Think back to the banning of cyclamates and their replacement by saccharin. What do the serious scientists say now? According to Richard Griesemer, deputy director of the National Institute of Environmental Health Sciences, "Saccharin doesn't have much risk and I don't think cyclamates have any risk at all." This is not an isolated example. In 1992, the scientific review panel of the Environmental Health Sciences Institute questioned the validity of the practice of feeding rodents the "maximum tolerated dose" (MTD) of the chemical being tested. According to the review committee, "approximately two-thirds of the carcinogens would not be positive, i.e., not considered as carcinogens, if the MTD was not used." The response to this finding offered by government officials would be humorous if the subject were not so serious. They countered by stating that probably only one-third of the chemicals shown to be carcinogens in animals likely would be benign at lower levels. So, the outside reviewers claimed the error rate in all of those cancer tests was two out of three, and the bureaucrats maintained it was only one out of three. That doesn't exactly inspire confidence in the reliability of those animal tests as the basis for declaring substances as causing cancer. Onerous government regulation is not limited just to business firms. Hospitals, schools, and state and local governments all are affected. The Ohio Department of Public Health complains about the Safe Drinking Water Act. While it is hard to be against safe drinking water, of the 52 pesticides the law requires be tested in each state, just nine are sold in sufficient quantity to show up in the water in Ohio. Society's bottom line is not the impact of regulatory actions on the government or the business system--it is the effect on the consumer and on the citizen. As the EPA now has acknowledged, many of asbestos-removal projects have been unnecessary. Some 95% of the asbestos in U.S. buildings is in a form called chrysotile, which most scientists say is harmless. Yet, the original hysteria about asbestos in schools and other buildings made no distinction between chrysotile and the dangerous amphibole type. What can be done to reform government regulation? At the outset, it is necessary to be aware of the fact that the oldest government attitude toward business is to use command-and-control. In contrast, modern economists rely primarily on competition in the marketplace to protect the consumer. Deregulation of interstate trucking, for example, has resulted in thousands of new companies entering the business. The heightened degree of competition has forced sizable reductions in the cost of trucking. This ultimately shows up in lower prices of the items that are transported. When government does regulate--as in the case of reducing environmental pollution--policymakers should make the maximum use of economic incentives. To an economist, responding to environmental pollution is not a negative task of punishing wrongdoers. Rather, the challenge is a very positive one--to change incentives. After all, people do not pollute because they enjoy messing up the environment; they pollute because it often is cheaper, or easier, than not doing so. For instance, a study of the Delaware estuary showed that effluent fees, set at a high enough level to achieve the desired level of water purity, would cost half as much as a conventional regulatory program to achieve the same environmental cleanup. What about the existing array of command-and-control regulation? Here, economists offer benefit/cost analysis to make sure that any given regulation does more good than harm. Such analysis has been used for decades in screening government spending programs. It is neither a revolutionary, new idea nor an invention of the far right. In fact, the process has been attacked by both ends of the political spectrum--the far left because not every proposal for government intervention passes a benefit/cost test; the far right because such analysis can justify government intervention. --------------------------------- Yahoo! Messenger NEW - crystal clear PC to PCcalling worldwide with voicemail [Non-text portions of this message have been removed] ------------------------ Yahoo! Groups Sponsor --------------------~--> Has someone you know been affected by illness or disease? 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