Regulations a rising economic burden to manufacturers, report says

Rainier Ehrhardt/AP - In this Tuesday, July 24, 2012 photo, tire inspector Flora Roundtree checks a tire for defects at a Michelin manufacturing plant in Greenville, S.C. The Institute for Supply Management, a trade group of purchasing managers, announced Wednesday, Aug. 1, 2012, that manufacturing shrank for the second straight month in July, further evidence of an economy growing at a sluggish pace.

The economic burden of federal regulation in the United States has risen dramatically over the past 20 years, particularly affecting the nation’s manufacturers, according to a report by an industry group to be released Tuesday.

The average number of major federal regulations — those expected to have an economic impact in excess of $100 million — that have been finalized each year has risen with each recent administration, according to the report.

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Under President Bill Clinton it was 27 per year. The number rose to 35 under George W. Bush and stands at 44 per year between 2009 and 2011 under President Obama.

“The increasing number of regulations has harmed the manufacturing sector’s production,” the report said. All aspects of manufacturing “are impacted negatively by the myriad regulations.”

David Montgomery, the principal investigator on the report for NERA Consulting, which was commissioned by the Manufacturers Alliance for Productivity and Innovation, added that “the cost of regulation has been growing substantially faster than industry output.”

The manufacturing industry report calculates only the cost of regulation and does not address the benefits of cleaner air, energy efficiency and other goals of such rules.

The role of regulation in the U.S. economy has been a subject of heated debate in the 2012 presidential race.

The Obama administration last year initiated a government-wide review of regulations that was supposed to remove or improve those that are outdated, unnecessary or too burdensome. But Republican presidential challenger Mitt Romney has called regulation a “hidden tax” and says that the economy has been harmed by “the whims of unaccountable bureaucrats pursuing their own agendas.”

Exactly how to tally up the costs and benefits of rules is complicated.

The report uses the federal goverment estimates of regulatory costs in compiling its figures.

But that doesn’t count the impacts of the regulations for which the federal government doesn’t estimate a cost. It also leaves out the costs imposed by thousands of minor regulations.

For example, the report found that the regulatory burden on manufacturers has more than doubled over 10 years, growing from about $80 billion in 2001 to more than $164 billion in 2011.

“Some of the most onerous regulations imposed on the manufacturing sector over the last decade involve those affecting the manufacturing sector’s energy use and emissions from its facilities,” according to the report.

But as the report makes clear, those figures leave out significant compliance costs.

It doesn’t include the costs stemming from 21 of the 166 major rules believed to affect manufacturers, because the federal government hasn’t calculated their costs.

Perhaps even more significantly, the report doesn’t tally the benefits of regulations, which can be vast.

Last year, for example, the Environmental Protection Agency published a report on the costs and benefits of the 1990 Clean Air Act rules. The agency estimated that the cost of compliance would be about $65 billion annually in 2020. But it estimated the value of the benefits — health effects and visibility improvements — at almost $2 trillion.

Other regulations that the report cites also have significant public support: fuel economy standards for cars, rules for appliance efficiency, the minimum wage, and the regulations for financial and securities industries.

Finally, while the compliance costs may be borne most directly by the manufacturers, at least some of the burden may be shifted to consumers, particularly on automobiles.

“The incremental cost to buyers may relatively small,” said John DeCicco, an expert in automotive efficiency at the University of Michigan. “There are also clearly some public benefits. It always comes down to a judgment call.”

 
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