PPI In the News

Fortune: The Red Tape Conundrum

How the wrong kind of regulation is strangling business—and what to do about it.

Even economists who believe that the system is flawed have a hard time quantifying the issue. “I do think that our economy loses resilience and adaptability because the regulatory structure is so rigid,” says Michael Mandel, chief economic strategist at the center-left Progressive Policy Institute and one of Washington’s top thinkers on regulatory reform. “I would say that our sluggish growth is partly connected with regulation. But it’s hard for me to put a number on it. And God knows I’ve tried.”

Mandel of the Progressive Policy Institute has introduced a metaphor—one that was often repeated to me by others—to describe the effects of regulatory accumulation. It’s like throwing pebbles in a stream, the economist says. Toss one in, or even two or three, and there’s no obvious effect. But once you throw in a hundred you may start to block the flow of water. “It’s really about taking degrees of freedom away from businesses,” he says.

This is compounded by the fact that the rulemaking machinery—just like the law-making system—is geared toward pushing out new regulations, not removing them. And once new rules are on the books, they usually just stay there. Mandel points out that there is no central place in the federal government where you can report problems with regulations. And because there’s no database of complaints, there’s no way to analyze the patterns and identify overlaps that need addressing.

“I kind of think of the regulatory issue as people basically saying in their own varying ways, ‘Who’s in charge here?’ ” says Mandel. “Is there anybody who’s really steering the ship? If you point out to somebody that there’s a problem, is there anybody that can respond?”

The Progressive Policy Institute’s Mandel worries about red tape stifling innovation in ways that we don’t even see. As an example, he offers arguably the biggest consumer technology breakthrough of the past decade—the smartphone. Mandel points out that when Apple partnered with AT&T to bring out the first iPhone in 2007, the companies were able to negotiate their original deal for the uniquely data-heavy iPhone, including an unlimited data plan, without regulators looking over their shoulders. “Suppose that you’d had to have hearings? And how long it would have taken, and how many objections would there have been?” asks Mandel, exploring the hypothetical. “How much growth would have been lost by that?”

Mandel says the current system of retrospective review hasn’t made an impact. Along with Diana Carew, a colleague of his at PPI, he has proposed the formation of a Regulatory Improvement Commission that would be authorized by Congress for a fixed period to identify regulations that should be eliminated or changed to encourage innovation. A version of the proposal has been introduced in the Senate and House in the past couple of years, but has yet to gain traction.

Read more at Fortune.