More Regulations Ahead

In today’s Wall Street Journal, Elizabeth Williamson links the housing-market crisis to recent problems with food, drug, and toy safety and suggests that the combination of these problems spells more regulation on the horizon:

The idea that less regulation is better for the economy has held sway in Washington since the Reagan administration. Now that consensus is crumbling, posing a potentially costly challenge to business no matter who wins the White House in November.

The crisis in the nation’s housing market, the recent turmoil on Wall Street and a series of safety scares involving food, drugs and toys are driving both political parties to reconsider how much companies and markets should be relied upon to police themselves.

In some cases, companies and industry groups figure that more and stricter regulations are inevitable, and are hoping to get less-strict versions of them in place before the clock runs out on the Bush administration (their push for less-strict regulations has been going on for a few months now). Williamson points out, though, that there’s no single industry position here, because some groups will keep pushing reflexively against regulation, while others have realized that the current environment is bad for business:

Opponents of government regulation concede they face a difficult climate no matter what happens in November. “Obviously the crisis in the subprime [mortgage] market has revealed a regulatory weak spot,” said David Chavern, chief operating officer of the U.S. Chamber of Commerce.

Even before the subprime-mortgage crisis, the group had singled out government regulation as a key battleground for the next five years. “We’re going to use the whole set of tools,” including advertising and Web-based campaigns and studies on the costs of regulation, Mr. Chavern added, “putting the burden on the people who are calling for the regulations to show it’s really going to work.”

One of the Chamber’s priorities, he said, would be challenging energy, labor and environmental regulations.

But the recent spate of recalls has split the business community. The Chamber and the National Association of Manufacturers have stuck largely to an antiregulatory agenda. Meanwhile, lobbyists for the sectors most directly affected by the recalls — such as grocers and toy makers — have backed tighter controls.

“We approached Congress last summer when recalls started to happen and asked them to make toy-safety testing mandatory,” said Joan Lawrence, vice president for toy safety and regulatory affairs at the Toy Industry Association, the industry’s biggest trade group.

“We wanted to create a level playing field, so everyone is testing to new regulation,” she added.

That level playing field is important. There are usually a few businesses that are spending more money than their competitors to monitor factory conditions, test finished products, or take other steps to ensure their products’ safety. They might do this because they think it’s the right thing to do, or because they think it’ll help them win and keep customers in the long run – but regardless of why they do it, they end up spending more than their competitors to produce similar products.

Requiring that all companies meet the standards that responsible companies are already meeting is good for the responsible companies. And if recent events have taught us anything, it’s that we need mechanisms to encourage responsibility and/or discourage irresponsibility, because not all companies will do the right thing when left alone.