Going by the Book

The Problem of Regulatory Unreasonableness

Walter Kaufmann

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351516990
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The extent to which government should be involved with regulation in the private sector is much debated. More fundamentally, one might ask exactly what is regulation, why is it needed, how is it formulated, and how is it enforced? These questions are especially relevant at a time in United States history when federal involvement in spheres traditionally left to individuals is being widely debated on all sides of the political spectrum.

Part 1 The Problem of Regulatory Unreasonableness

1 The Growth of Protective Regulation

The rule of law was invented to restrain the willfulness of kings and nobles. In modern republican states, it is invoked by citizens to restrain all manner of public institutions and practices that threaten their sense of security and justice. But the restraints of the rule of law are willful in their own way. They command certain procedures, and they dictate that all statutes and regulations be applied uniformly, consistently, and fairly. The realm of human activity to which these rules are applied, however, is diverse and complex. It is not always possible to successfully connect the procedural and substantive requirements of law to the variety of experience. Yet government must govern, and if it cannot do so by forging perfect connections to the society it governs, then it will make do with imperfect connections.

An important consequence of this essential mismatch between government and society is that there are bound to be points of friction, which have multiplied in recent years, especially through the proliferation of protective regulatory laws enacted since the mid-1960s. The impulse behind this growth has been to protect citizens from a broad range of social harms, perhaps too long neglected, including occupational injuries and diseases, environmental pollution, product-related injuries, highway accidents, discrimination in employment and education, and consumer fraud. The basic techniques of these regulatory programs have been the legislation of rules of law specifying protective measures to be instituted by regulated enterprises and the enforcement of those rules by government inspectors and investigators, who are instructed to act in accordance with the terms of the regulations, not on the basis of their own potentially arbitrary judgment. But uniform regulations, even those that are justifiable in the general run of cases, inevitably appear to be unreasonable in many particular cases. Consider, for example, the experience of Al

Schaefer,^* the director of worker safety for a major aluminum manufacturing company, with the Occupational Safety and Health Administration (OSHA).¹

By all accounts, including those of a labor union safety officer, a regional OSHA official and a plant-level safety engineer with experience in other firms, Schaefer's company seems to have a positive attitude toward worker safety and an aggressive safety program. Still, the corporation's numerous plants have been visited by OSHA inspectors a total of 30 to 50 times a year; the company received an average of 225 citations each year and paid a total of $25,000 in fines over the last seven years. But, argues Schaefer, OSHA inspections have made little positive contribution to safety in his company. 'The major problem with OSHA," he says, "is that they mandate safety standards even where they are not the highest priority risk in a particular plant." He gave an example involving an OSHA regulation that called for "alternative means of egress" from public gathering places, such as restaurants. An OSHA inspector applied this rule to the lunchrooms in an aluminum smelting plant. The heart of the smelter is composed of long rows of furnaces (or "pots") in which molten aluminum is formed from alumina (refined bauxite). Crucibles of molten aluminum are transported along these rows by motorized vehicles. Small, aircon-ditioned lunchrooms are adjacent to the "potline" but separated from it by a cinder-block wall; the doors to the lunchroom do not open directly into the potline, but open off side corridors. The lunchrooms had no rear exits.

OSHA said rear exits were required. The only justification OSHA could offer (other than the text of the regulation) was that if the molten aluminum spilled and went into the side corridors and a fire started, workers in the lunchroom would be trapped.

"Now that citation does not represent a rational assessment of risk," Schaefer says. "Of course, it could happen. Almost anything could happen. Never mind that it's more likely that an earthquake could happen. Never mind that in the 15 years the plant has been operating nothing like that happened, or even any incidents that suggest it might happen."

Besides, he points out, because the lunchrooms are of cinder-block construction, the only thing that could burn is the wooden door. To cut through the other side and install a door, he says, would cost $6,000 per lunchroom, times 10 lunchrooms. "This is a total misapplication of resources. I could use that money for real risk reduction in plenty of other places."

To Schaefer, OSHA appeared unreasonable. But was OSHA unreasonable? Although we did not investigate the details of this or several similar instances described by Schaefer, we did interview many regulatory officials from a variety of agencies, including OSHA, and a rebuttal to Schaefer might have sounded like this:

Either directly or through state agencies that enforce the OSHA regulations for us, we regulate worker safety and health in almost five million workplaces. They are extremely varied. If we had rules that were exactly suited to each hazard and each situation in every one of those workplaces, the inspector's manual would have to be transported in a truck. So we have to simplify and standardize, and obviously some cases of overinclusive rules and regulations are going to result. Remember, Al Schaefer or people like him can always file for a variance because the law does give us latitude to waive compliance in cases where equivalent protection is provided by other means.

True, we don't let the inspector at the field level have the discretion to waive compliance. But that is because he would then be susceptible to manipulation, bribery, and perhaps intimidation. Besides, not all 3,000 occupational safety and health inspectors are sufficiently trained or clever or morally upright to be entrusted with discretionary power. It may be somewhat inconvenient for Al Schaefer and others in his position to seek waivers through the proper channels, and in some cases they just might choose to comply with regulatory rules rather than do it, but remember that workers' lives and well-being are at issue. If the system has to make errors, which of course it does, it is better to err on the side of safety. We at OSHA think that, our statutory mandate indicates that Congress thinks that, and public opinion polls suggest that the public overwhelmingly thinks so too.

Who, then, was unreasonable?

A famous old story has a litigant coming before a rabbi and pleading his case with great passion. When he is done, the rabbi pronounces, "You are right!" Thereupon the second litigant hastens to tell his side of the story with even greater passion, and when he is done, the rabbi also pronounces, "You are right!" Dismayed, a bystander who has heard the entire proceeding leaps forward to observe that the two litigants' stories had been utterly incompatible and that it could not logically be the case that both were right. To which the rabbi responds, "You too are right!"

Al Schaefer has what we term a "civilian" perspective on his experience with regulation, and our hypothetical spokesman for OSHA is invoking what we call an "official" perspective. Both perspectives are right. Even the best efforts at regulation, which might produce, on the whole, quite laudable results, are bound to produce many unreasonable and even deplorable results. The official perspective, emphasizing the positive results, is legitimate and defensible, but so too is the civilian perspective, which is tinged with anger and resentment at regulatory departures from common sense. The fact that regulatory unreasonableness is unintended and incidental to the accomplishment of a larger purpose does not make it less unreasonable to the individuals who endure it. The objective of this book is to explore the character, the sources, and the consequences of regulatory unreasonableness.

The Several Dimensions of Regulatory Unreasonableness

Basically, "unreasonableness" involves economic inefficiency. A regulatory requirement is unreasonable if compliance would not yield the intended benefits, as when installing a government-mandated safety device would not really improve worker safety because of the operating conditions in a particular factory. Further, a regulatory requirement is unreasonable if compliance would entail costs that clearly exceed the resulting social benefits. For example, mandatory installation of a "second-generation" water pollution treatment system might be unreasonable, even if it were to improve water quality incrementally over the level provided by existing equipment, if that improvement were to be achieved only at extraordinary expense. Finally, unreasonableness means cost-ineffectiveness; for example, regulations requiring the retrofitting of buses and subways to accommodate wheelchair-bound citizens would be unreasonable if a special door-to-door jitney or taxi service could be provided at a fraction of the cost.

The focus of this book is on the social dimension of unreasonableness: the experience of being subjected to inefficient regulatory requirements. The distinction is made, therefore, between "rule-level unreasonableness," which has to do with aggregate economic inefficiency, and "site-level unreasonableness," which has to do with particular encounters between enforcers and the regulated. To be sure, the latter is a logical corollary of the former. Nevertheless, site-level unreasonableness is a distinguishable phenomenon. Even regulatory rules that in the aggregate produce social benefits that exceed compliance costs can lead to countless instances of site-level unreasonableness. Moreover, there is a difference in social impact. Site-level unreasonableness exists not as a cost-benefit ratio or some such abstraction, but as a mosaic of personal, and often very troubling, experiences. Site-level unreasonableness explains much of the present political and social discontent with protective regulation. Admittedly, a great many people are disturbed by the high aggregate economic costs of protective regulation, costs that are estimated in the billions of dollars a year.² But the present discontent with protective regulation, as expressed in most complaints about it, has almost nothing to do with aggregate costs and almost everything to do with particular costs and aggravations imposed by particular enforcement officials on particular institutions and businesses.

Everyone who has ever been subjected to regulation, whether at the hands of a welfare eligibility evaluator, an affirmative action compliance specialist, or a county sanitation officer, has a stock of horror stories about particular regulatory encounters. These stories enter into the stream of conversation and ultimately into the cultural consciousness that defines and measures the evils of regulation. Horror stories may not represent the modal pattern of regulatory agency activity, and may in fact mask good that is achieved, but they do reflect a genuine truth about the inevitability and vexatiousness of regulatory unreasonableness.

The Origins of Protective Regulation

Of course, regulatory unreasonableness would not exist at all if there were no protective regulation in the first place. To understand the phenomenon of regulatory unreasonableness, we must also understand where the regulators and their regulatory programs come from. For example, protective regulation, it should be clearly understood, is by no means a recent invention. Regulation has long been employed in America to prevent misleading or dangerous commercial practices. In the colonial era, a Massachusetts law required each town to appoint a "gager or packer" to see to it that "the best be not left out" in sealed packages of beef and pork; it provided that "if such goods so packed shall be put to sale without the gager 's mark, the seller shall forfeit the goods... the one hälfe to the Informer and the other hälfe to the countrey."³ In the early nineteenth century, New York had an "inspector general of provisions" with authority to confiscate unwholesome food.⁴ Resentment of inspectors is not new either. In 1846, delegates to the New York Constitutional Convention voted to rescind laws regulating many products and forbade the reestablishment of inspection offices, expressing dissatisfaction with the multitude of officials and their perquisites.⁵

The first explosion of modern regulatory inspection programs, however, came in the late nineteenth and early twentieth centuries in response to the new hazards generated by industrial technologies and to new scientific discoveries about the relationship between unsanitary conditions and disease. Most famous were the federal pure Food and Drug Act and the Meat Inspection Act, both passed in 1906. They led to close government inspection of meat processing plants for poor sanitation and sampling of food products for signs of adulteration. Workplace safety and health were other targets. By the end of the nineteenth century, many states, following the English model, had passed laws requiring factories and workshops "to be kept in a cleanly state and free from effluvia" and "so ventilated as to render harmless, so far as practicable, all the gases, vapors, dust or other impurities generated."⁶ Regulatory officials were empowered to inspect factories for violations and, in some cases, to order factory owners to install protective devices. Iowa enacted a coal mine inspection law in 1880, authorizing inspectors to check ventilation and safety conditions.⁷

A surge of federal legislation at the turn of the century set safety standards for railroads and provided for inspection as a means of enforcement. The Locomotive Inspection Act (1911), for example, required railroads to establish a routine self-inspection system for boilers and locomotive parts, using testing procedures and personnel certified and supervised by Interstate Commerce Commission (ICC) inspectors.⁸ Urbanization and new technologies led to government inspection of potentially explosive containers of heating oil and of electrical wiring.⁹ New York's first tenement housing law, enacted in 1867, required apartment buildings to have air shafts, fire escapes, proper chimneys, and adequate waste disposal facilities. By the early twentieth century, detailed municipal housing codes, requiring a check by a government inspector before buildings were approved for occupancy, were quite common.¹⁰

In some industries, established firms sought government coercive and inspection powers in order to discipline (or drive out) competitors whose unsafe practices or products weakened consumer confidence and jeopardized the growth of the industry. Some major manufacturers and distributors supported the pure Food and Drug Act.¹¹ The California State Dairy Bureau, described as "the virtual representative of the California Dairy Association," was authorized in 1895 to inspect sanitary conditions in dairies and to order improvements; by 1917, it had 20 inspectors.¹² The state veterinarian and county livestock inspectors were authorized to inspect horses and cattle and to quarantine or destroy diseased animals.^13*

These and other regulatory programs designed to prevent accidents and disease should be seen in perspective: society's first line of defense against dangerous products and processes usually has been the economic market and the incentives it creates. The prospect of gaining customers and the fear of losing them, after all, motivate most enterprises to build a certain level of safety and reliability into their products or services. Consumers often act as their own inspectors. They feel the tomatoes and sniff the cottage cheese. They warn their friends about products that turned out to be unsafe or about tradesmen who performed poorly. They hire experts to check out buildings before they buy. To win the confidence of consumers and retain their loyalty, many enterprises guarantee their products and hire their own cadre of inspectors. Manufacturers insert slips marked "Inspected by No. —" in the pockets of a new garment or the boxes containing new appliances.

Consumer demand has led to professions and organizations that specialize in assuring reliability. Large retailers, such as Sears Roebuck and J. C. Penney, have departments that check the safety of products they sell.¹⁴ Teams of quality control engineers and their staffs oversee assembly lines in canneries and automobile factories. Architects and engineers are hired to establish principles of sound construction and to supervise builders. Casualty insurance companies have played a major role in developing standards of fireproofing in construction and insisting on the installation of sprinkler systems. Because workplace accidents disable experienced employees and stop production, which hurt profits, industry has a long history of ...

Table of contents

• Cover Page
• Half title
• Title Page
• Copyright Page
• Dedication Page
• Part 1 The Problem of Regulatory Unreasonableness
• 1 The Growth of Protective Regulation
• 2 Toward Toughness: The Changing Legal Structure of Enforcement
• 3 Unreasonableness
• 4 The Perverse Effects of Legalism
• Part 2 Flexible Enforcement and Its Limits
• 5 The Good Inspector
• 6 Managing the Regulatory Agency
• 7 The Regulatory Ratchet
• Part 3 Indirect Regulation
• 8 Private Regulation
• 9 Mandatory Disclosure
• 10 Liability
• 11 The Social Responsibility of Government
• Notes