TCS Daily

Why We Don`t Want Net Regulation

By James Freeman - July 31, 2000 12:00 AM

Whenever the FCC ponders new regulations for broadband networks, or the FTC proposes new online privacy laws, tech consumers and investors should recognize a major threat to growth and innovation. Fortunately, the government has begun to quantify that threat, and it demonstrates the high price we'll pay for attempted fixes from Washington.

A major reason that America's high-tech industry has been so good for consumers and investors is that, for most of its history, Silicon Valley has benefited from Washington's neglect. Tech firms don't suffer from many of the regulatory burdens that mature manufacturing businesses must bear, and tech consumers don't have to pick up the tab for active government. And that tab is enormous, as a recent report to Congress by the Clinton administration's Office of Management and Budget (OMB) makes clear.

Call it the hassle tax - the cost of complying with Washington's rules and regulations. Putting a dollar figure on the wasted time and resources resulting from red tape isn't easy, but Washington has begun to try. Congress now requires OMB to estimate the costs and benefits of government regulations, and OMB's June report delivers some interesting data.

As you might expect, the government calculates enormous benefits resulting from its work. But what's surprising is how large the costs are that it's willing to concede. For example, the Clinton administration reports that, beyond the explicit taxes that we pay, Americans are forced to spend at least $96 billion a year complying with environmental regulations (all the figures in the report are expressed in constant 1996 dollars, so it's actually more than $100 billion today).

To put this in perspective, we pay more to comply with environmental laws than the total combined annual revenue of Microsoft, Coca-Cola, Nike, McDonald's, AOL and Disney. OMB says that the cost of environmental laws could be as high as $170 billion, which would exceed the total combined revenue of the companies listed above, plus those of Intel and Procter & Gamble.

Of course, environmental regulations are just one part of the equation. When we add the cost of social regulations, such as labor laws, the government says the figure could be up to $229 billion. This would mean that our list of company revenues would expand to include those of Cisco Systems, Maytag and Merrill Lynch.

But wait: There's more. Clyde Wayne Crews Jr. of the Competitive Enterprise Institute puts out an annual report called "Ten Thousand Commandments" that tracks the growth of federal regulation. Relying on research by Thomas Hopkins of the Rochester Institute of Technology, Crews points out that the government isn't counting economic regulation, such as price restrictions and various paperwork costs. According to Crews, the grand total for the cost of federal regulation in 1999 came to $758 billion - more than $7,000 of regulatory costs for the typical family of four. If Crews and Hopkins are right, it means that the average American family pays more in regulatory costs (reflected in the prices of various products) than it does for clothing, food or medicine. It means that the amount we pay to comply with federal regulations is larger than the entire economy of Canada.

Is that possible? Well, some people will certainly quarrel with Crews' estimates, just as some people aren't buying the government's numbers. But even if we accept the minimum estimates, the government is saying that each year, regulations cost the average American household close to $1,500 above and beyond what it pays in taxes. That's a fairly large tab for the privilege of complying with the law. And it reminds us to think long and hard before endorsing new Internet regulations.

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