 DEREGULATION AND REGULATORY REFORM

The problems involved in regulatory administration prompted a broad movement toward

deregulatin and regulatory reform that began in the 1970s and continued into the mid-1990s,
when it began to sputter and reverse course somewhat only to regain momentum during the
George W. Bush administration. Deregulation is usually supported by one or more of four
basic arguments (other than that the cost of regulation is too high). One is that free markets
can provide more benefits to the society than can regulated ones. This view applies primarily
to surrogate-market regulation and some aspects of market-functioning and employment
regulation. Deregulation of the airlines and that of trucking industries are leading
contemporary examples, though their success is a matter of dispute.40
A second argument raised by those in favor of deregulation is that liability law can be
used to assure safety in many aspects of life. For example, the potential of suits against
automobile manufacturers can provide them with a strong incentive to design safe cars. The
same logic would apply to the drugs produced by pharmaceutical companies. Proponents of
this approach believe that once the incentive is strong enough, the private sector can be
inovative and responsible in designing safe products and developing safe and healthful work
processes. And it can do so without having to deal with the unproductive consequences of
overinclusive regulatory rules and red tape. However, even if one accepts this view, there may
be a dispute as to whether liability laws need to be rewritten in some areas to provide strong
enough incentives to market only safe products.
Another argument raised by those in favor of deregulation is that there is great
potential for the private sector to engage in self-regulation. For example, many firms and
unions do employ safety inspectors and take an active interest in establishing and maintaining
healthful and safe conditions in the workplace. In some cases, public law may require
enterprises to engage in self-regulation, as in the hazardous waste disposal business, trucking,
and the manufacture of intravenous solutions by pharmaceutical firms.41
Finally, proponents of deregulation sometimes argue that if business enterprises were
required to disclose information relevant to the safety, healthfulness, and security of their
products, services, or other offerings, the public could act as its own inspectors. Food labeling
for calories, fat, carbohydrates, sodium, protein, vitamins, and minerals is now ubiquitous due
to government regulations. Tobacco companies print the tar and nicotine content of their
cigarettes. Same states require used-car dealers to reveal known defects in the cars they sell,
as did federal regulations for a time. Credit agreements indicate the yearly interest rate, and
stock and banking offerings are subject to a number of mandatory disclosure regulations. In
other words, the argument goes, give customers enough information and they will force firms
to act responsibly.
Regardless of the desirability and political feasibility of deregulation, virtually all
knowledgeable observers agree that regulatory administration can be improved. Federal
regulatory reforms since the 1970s have sought greater coordination, centralized OMB review
of agency rule-making agendas and proposed rules, more thoroughgoing assessment of the
impact of proposed regulations and possible alternatives, delection of obsolete rules and
promulgation of fewer new ones, greater emphasis on cooperative compliance, and
consensual rule making. For the most part, reforms were aimed at augmenting the rule making
provisions contained in the Administrative Procedure Act of 1946 (APA). As noted in
Chapter 2, the APA provides for two main types of legislative (also known as substantive)
rule making: informal and formal. Informal rule making requires that proposed rules be
published in the Federal Register for public comment. Litigation challenging new rules has
made it standard practice for agencies to docket such comments and respond to them in some
fashion. All final rules are also published in the Federal Register, along with an explanation
of the basis for them. Formal rule making is much more procedurally oriented and
complicated. It involves quasi-judicial hearings, a showing that the proposed rule is supported
by substantial evidence in the record of the proceedings as a whole, cross-examination, and a
legal prohibition on onesided (ex parte) communications with the agency decision maker. The
APA leaves the choice of rule-making formats up to the agencies. They are unlikely to engage
in formal rule making unless required to do so by another statute. The APA also allows
agencies to dispense with informal rule making when they have “good cause”. This provision
permits them to issue direct and interim final rules. Direct final rules go into effect at a
specified future date unless adverse comments are filed. Interim final rules are immediately
effective but may be withdrawn or revised after adverse comments are filed.
From the reformers’ prespectives, the main shortcomings of the APA’s rule-making
provisions are that they do not require agencies to meet a substantive policy test, such as that
the benefits outweigh the costs, or provide a mechanism for coordinating rule making
government-wide. Under the APA, it is possible for agencies to work at cross-purposes and
issue conflicting rules. Reformers also favored augmenting the APA’s informal rule making
with hearings, though less elaborate ones than those required by formal rule making, and by
encouraging the agencies to negotiate their rules with the entities most affected by them.
Beginning with President Nixon and continuing throueh George W. Bush, presidents
have required executive branch agencies to address specific values in their rule making, such
as costs and benefits or impact on families, federalism, and environmental justice, and submit
proposed regulations to OMB or some other unit for review before initiating APA rule-
making proceedings.42 The independent regulatory commissions are largely exempt from such
requirements because, as a matter of constitutional law, they are not in the executive branch.43
However, they may voluntarily comply. Despite this and other limits on presidential power
(discussed in Chapter 2), OMB now plays major procedural and substantive roles in
structuring the analysis and content of much agency rule making to make it compatible with
the president’s policy objectives.
President Clinton’s Executive Order 12866 (1993) encapsulated much of the
reformers’ thinking with regard to agency regulatory action. It listed the following twelve
principles, which can serve as a useful guide to a great deal of administrative activity.

1. Identify the problems addressed.

2. Assess the contributions, if any, of existing regulations to those problems.
3. Identify alternatives to regulations.
4. Consider risks.
5. Assess cost-effectiveness.
6. Weigh costs and benefits.
7. Base decisions on the best obtainable information.
8. Assess alternatives among regulatory possibilities.
9. Seek the views of state, local, and tribal governments.
10. Avoid inconsistency.
11. Impose the least burden on society.
12. Write regulations in simple, understandable language.

Like other reforms, the Negotiated Rulemaking Act of 1990 (NRMA) is an effort to
improve the quality of rules. The idea is that rules negotiated with interested parties will be
timely, better reflect the needs of the regulated as well as those of the regulators, and result in
fewer lawsuits. Rule-making committees, generally limited to twenty-five members, negotiate
the rules with the aid of a facilitator, mediator, or similar functionary. Unanimity is required.
The agency is a participant but ultimately retains control of the outcome because negotiated
rules are subject to the notice and comment requirements of informal rule making under the
APA. To date, experience has been mixed for speeding up the rule-making process and
reducing litigation.44
The regulatory reforms of the past three decades or so now enjoy broad congressional,
judicial, and bipartisan support. Consequently, it appears likely that change in the near term
will continue to emphasize coordination,simplification, better analysis, and cost-
consciousness. However, deregulation seems to have run its course-for now. The collapse of
much of the savings and loan industry in the 1980s, the massive 6.5 million
Bridgestone/Firestone tire recall in 2000, the deceptive accounting involved in the spectacular
Enron bankruptcy in 2001, and California’s disastrous experiment in deregulating electric
power challenge some of the fundamental premises on which deregulation is based. Within
this general framework of regulatory reform and caution regarding deregulation, the various
perspectives on public administration offer different visions of what to emphasize in
regulatory administration.