As part of his economic philosophy that lower taxes and less regulation were the tonic for an ailing economy, President Ronald Reagan did more to change the dynamic of the federal regulatory system than any of his predecessors.
Though the Reagan administration is remembered most vividly for cutting agency budgets, eliminating rules and creating a task force to scrutinize regulations that the administration and business wanted to change, regulatory experts say the real effect of those years can be traced to a change in the process of creating rules.
Within weeks of taking office in 1981, the Reagan administration issued an executive order that, for the first time, set up a system of reviewing all of the rules issued by dozens of federal agencies. The Feb. 17 order set out a protocol of review and cost-and-benefit analysis that laid the groundwork for the way that the federal regulatory system works today. It replaced a much looser system of consultation where previous administrations reviewed some but not all rules.
The result was a kind of deregulation that did not depend so much on removing regulatory barriers for entire industries, as the Carter administration did for airlines in 1978. Instead, it used administrative tools that sometimes made it harder for federal agencies to issue rules as their regulatory agendas became subject to strict oversight by the White House.
Robert Hahn, executive director of the AEI-Brookings Joint Center on Regulatory Studies, said the Reagan executive order became the template for regulating in the United States and in other developed countries. Hahn said regulators now routinely take "a hard look" at how a rule will affect costs and benefits and try to quantify that effect -- a process that many consumer and liberal group oppose.
Sally Katzen, head of the regulatory review office in the Clinton administration, said the idea of centralized review of rules began in the Nixon administration, but Reagan "took an enormous step forward consolidating central review and embracing cost-benefit analysis as the way to think about regulation."
C. Boyden Gray, counsel to the new president's Task Force on Regulatory Relief (headed by Vice President George H.W. Bush), was one of the authors of the new executive order. The passage of the Paperwork Reduction Act, which was signed by President Jimmy Carter, also created an office dedicated to reviewing rules within the Office of Management and Budget. It was called the Office of Information and Regulatory Affairs (OIRA), and its first director was James C. Miller III, co-author of the new executive order.
"There were changes in the regulatory process that led to more cost-effective, more informed, enlightened regulation," said Miller, who is now a consultant. "When you force agencies to think more aggressively about the costs and benefits of their rules . . . that leads to better regulation."
That executive order was later changed by the Clinton administration, and it influences how the current Bush administration supervises the regulatory component of the federal government. But regulatory experts contend that the Reagan administration was the first to exert consistent control over the regulatory process at the presidential level. That control, they said, gave great power to the White House in crafting regulatory policy and redefining the old "iron triangle" that existed between powerful congressional committees, business lobbyists and the agencies in issuing new rules.
"Every president since then has adopted or refined that system. But no president has thought of abandoning it," said Cornelius Kerwin, provost at American University and a professor of public administration.
John Graham, who currently heads OIRA, said, "The OMB role in regulatory review . . . was reaffirmed and strengthened by his successors from both political parties."
In a Feb. 18, 1981, fact sheet issued by the White House to the media, the administration announced the details of its regulatory program, saying it would "reduce the burden of federal regulations and paperwork . . . and reduce the intrusion of the Federal Government into our daily lives."
The new administration ticked off its accomplishments: creating the Task Force on Regulatory Relief to assess major regulatory proposals, reviewing rules already on the books ("especially those that are burdensome to the national economy or to key industrial sectors"). The White House put a moratorium on new rules issued in the last days of the Carter administration, a process the current Bush administration also used when it came to power. It launched a review of the rules of 14 agencies with an eye to eliminating those in development or already issued.
That plan eliminated a proposed expansion of bilingual education, delayed an air bag rule that was supposed to go into effect in September 1981, withdrew an Occupational Safety and Health Administration rule for labeling chemicals in the workplace and stopped the issuance of new efficiency standards for major household appliances.
The administration filled top cabinet posts with "reluctant regulators." The response to the air traffic controllers strike signaled that the administration wanted to apply its free-market, deregulatory principles to a heavily unionized sector of the government.
The administration bragged that it had saved more than $150 billion by 1984 and had slashed the number of proposed rules in the Federal Register from 13,700 pages in the last 30 months of the Carter administration to 9,400 in the first 30 months of the Reagan era. Staffing at federal regulatory agencies dropped from 121,791 in 1980 to a low of 101,303 in 1983 and hovered around that level during the Reagan years.
Along with subjecting agencies to time-consuming cost-benefit reviews, the OMB was cutting agency budgets as a way to redirect regulatory policy. For example, the budget of the Consumer Product Safety Commission was cut by some 30 percent, a reduction it has never really recouped.
William A. Niskanen, a member of Reagan's Council of Economic Advisers who is now chairman of the Cato Institute, said the Reagan program "accomplished a lot but not as much as they hoped." The administration did drop price controls on oil, deregulated intercity bus fares and routes, and implemented legislation that removed many investment restrictions on savings and loans. The Justice Department dropped an antitrust suit against IBM, and the AT&T divestiture of the old Bell system went forward.
Consumer activists and many Democrats were alarmed at the ideology of the new administration.
Gary Bass, executive director of OMB Watch, which was founded in 1983, said the administration was "highly ideological."
"There was an intense effort in those early years to pare back rules. They were quite successful in slowing the regulatory process. All the rules went through OMB and these guys were not afraid to hold rules they didn't like. They never met a rule they liked," said Bass.
Joan Claybrook, president of Public Citizen who was administrator of the National Highway Traffic Safety Administration in the Carter administration, said, "Ronald Reagan invited the regulated industries to set the agenda for the government. The only reason he wasn't totally successful was that the Democratic Congress and the courts stopped him."
She said the air bag rule that was revoked in 1981 was reinstated after the Supreme Court disagreed with the Reagan administration. In 1988, the rule went into effect.
Katzen said the Clinton administration made changes to the Reagan executive order, limiting review to only significant rules. She said the Reagan system lacked transparency and created a "black hole" where rules went into OMB for review and never came out. "You didn't know what was happening, and there was no way of finding out," she said.
For business, this was a time of regulatory harmony with the administration. Said Richard L. Lesher, then president of the U.S. Chamber of Commerce, "It worked wonderfully well. The Chamber policies and the Reagan policies coincided from top to bottom. He came in knowing the Chamber would be the key place to get input."
Frederick L. Webber, who was executive vice president of the Edison Electric Institute at the time, said "it wasn't a slam dunk" in getting rules changed. He noted that regulators were watchful in light of the nuclear accident in 1979 at Three Mile Island.
"They didn't agree with everything that the investor-owned electric utility wanted," he said. "The oversight was strong from where I sat, but not unreasonable and not punitive."
Congress also was watching closely what was happening on the regulatory front.
Rep. Edward J. Markey (D-Mass.) called the process an "assault" on regulation. He remembers the Reagan Federal Communications Commission killing a rule that required networks to provide children's programming, a change that Markey responded to with legislation in 1990.
Gray said he still remembers calling the general counsels of the federal agencies into a room to read the new Reagan executive order, which they did not know had already passed muster with the president. "They were grumbling, screaming, saying it was outrageous," said Gray, now a partner at Wilmer, Cutler & Pickering. "Then they saw that Reagan had signed it. It was a great day."