Regulation, Who Needs It?



President Trump signs EO 13771 on January 30, 2017

President Trump wasted no time launching his promised war on federal regulation. Ten days after the inauguration, he signed Executive Order 13771: Reducing Regulation and Controlling Regulatory Costs.

You’ve probably already heard that EO 13771 is a two-for-one deal. It requires that every newly proposed federal regulation be accompanied by the repeal of two existing regulations. And just in case the folks at the FDA or EPA or SEC or any other agency think they can pull a fast one, the order also requires that the total additional cost of all new regulations in fiscal 2017 net out at zero. Read the President’s lips: No added cost!

This is music to investor ears. Within a couple of weeks of EO 13771, the S&P 500 Index rose 5 percent. The chief executive’s order is not the only reason for the jump, but clearly less federal regulation means more profit for your company. Right?

Maybe not. Like President Trump himself, EO 13771 is only concerned with “how many” and “how much.” Also like the President himself, the order tars all regulation with the same brush. You’d never know it from EO 13771, but companies in all sectors — agriculture, auto, financial services, healthcare, pharma, tech, telecommunications, etc. — depend on and demand regulation.

Regulation establishes the standards that companies need to successfully commercialize new technologies. Consider self-driving trucks and cars. By 2022, PwC Strategy& estimates that autonomous driving packages will have the “largest incremental impact on new car sales — about $54.9 billion, up 31 percent annually from 2017.” What could interfere with this payday? A lack of federal regulation. Forty-eight bills have been introduced in 20 different states in the past 2 months — a “flood of inconsistent autonomous vehicle rules,” according to Bloomberg. No wonder Toyota and other automakers are pleading with the federal government to step in with a coherent set of national regulatory standards.

Regulation deters and punishes bad actors. When a company lies about the performance of its products or skimps on worker safety to cut costs, it is stealing revenue from competing companies that don’t resort to dishonest practices. “There are solid economic reasons for virtuous businesses to support regulations…where a level playing field is necessary to prevent free-rider advantages going to competitors willing to pursue gain at the expense of the public interest,” writes Jim O’Toole, University of Denver’s Daniels College of Business Distinguished Professor of Business Ethics, in strategy+business.

Regulation hinders unfair competition. Say your company pioneered the cool idea of streaming movies over the Internet, but the companies who pipe the movies to your customers decide to compete with you. To do it, they throttle back the delivery speed on your service or charge you more for delivering it, or they deliver their movies faster or without tapping their customers’ data plans. How do you stop them from beating you by messing with the playing field? Net neutrality, which, by the way, President Trump’s new chairman of the FCC Ajit Pai just called a “mistake.”

I’m not saying that all regulation is beneficial or that all the costs it creates in business and in government are justified. That would reduce complex issues that require thoughtful analysis and considered action to an overly-simplistic sound bite that could harm the U.S. economy, companies, and consumers. Kind of like Executive Order 13771.

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