Reforming Regulation to Drive International Competitiveness

March 16, 2015
Smart regulatory reform focused on sectors that compete internationally can boost U.S. economic competitiveness while maintaining, or even increasing, social benefits.

Poor regulation is especially damaging when applied to industries that face international competition. Unlike firms in other industries, these companies are more likely to move their production to jurisdictions where the cost of regulation is lower. Failing that, they may find themselves losing global market share to less burdened rivals in other nations. In either case, the U.S. economy suffers.

This report shows why regulatory reform focused on traded sector industries can substantially reduce costs and boost competitiveness while maintaining, or even increasing, social benefits. The paper analyzes some of the general policy issues associated with regulatory reform. It first looks at the regulatory process to show why it is unreasonable to expect that regulation will always maximize social welfare. In fact, it is not unreasonable to expect that some regulations will become significantly out of date or that the regulatory process imposes significant costs. The paper then looks at case studies in three areas—medical devices, aircraft production, and export controls of high-tech productions—in which regulation affects the competitiveness of specific industries that face global competition. It could have easily looked at other industries as well, including information industries, semiconductors, and life sciences.

The paper then lists general principles that regulators should follow:

  1. Anticipate innovation.
  2. Embrace transparency.
  3. Concentrate on metagoals.
  4. Place more trust in the consumer.
  5. Place more emphasis on reducing the cost of over regulation.
  6. Recognize the value of time to industry.
  7. Adhere to cost/benefit analysis.
  8. Take into account the competitiveness impacts of regulation.

The paper concludes by proposing specific institutional reforms to ensure agencies follow these principles, especially with regard to industries facing international competition:

  1. The National Economic Council should create inter-agency regulatory councils to examine the regulatory environment facing particular traded sector industries and use that analysis to guide reform.
  2. The Administration should create an Office of Innovation Policy.
  3. Agencies should open up the regulatory review process even further by making it easier for industry and the public to monitor rulemaking, “crowdsource” regulatory approaches, and initiate reviews of existing rules.
  4. Congress should update authorizing legislation and conduct more detailed oversight of the regulatory process.
  5. Congress should provide agencies with the resources they need to regulate effectively.