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Senator Warner’s Smart Thinking on Red Tape

By / 12.13.2010

With Congress about to enact a massive new tax package that may be the last attempt we make at any kind of fiscal stimulus anytime soon, what other approaches should we be looking to for the long-term changes we need to regain our economic vitality?

In this morning’s Post, Senator Mark Warner offers an answer that makes a lot of sense in the cash-strapped, post-stimulus world we find ourselves in: cutting regulatory red tape to invigorate the private sector.  Citing both the enormous compliance costs for businesses as well as the chilling effects regulation can have on  investment and innovation, Senator Warner outlines his legislative proposal for a “regulatory pay-as-you-go” system to curb the steady increase in regulatory burdens on our economy.

Senator Warner’s proposal, which he discussed at PPI’s infrastructure forum in September, is similar to the “one-in, one-out” approach recently adopted in Britain, requiring agencies imposing new regulations to identify existing regulations with the same amount of economic impact to be eliminated.  The idea is that if we are serious about wanting to let the private sector drive economic growth through new investment and innovation, we should at least try to hold the level of regulatory burden constant, rather than expanding it without any effort whatsoever to revisit potentially outdated or poorly designed rules already in place.

PPI has argued for the same idea that our regulatory system needs to be more responsive to the needs of the economy, most notably in recent policy memos by Michael Mandel, who has proposed his own approach of countercyclical regulatory policy.  Like Warner, Mandel suggests that one of the best ways we can encourage job growth and revive our economy is to recognize that government is generally better at choking off innovation than it is at actively promoting it, so the best thing we can do is to be cautious in imposing new rules on the innovative ecosystems in our economy, like the communications sector, that are the best sources of new growth.

Senator Warner is right to model his legislation on the steps taken in the U.K., but the trick is coupling good ideas with the right political leadership to force a cultural shift in the way we think about regulating the private sector.  As Warner points out, British reforms have been years in the making, and they are the product of institutional changes based on improving collaboration and input from business to craft policies that would make Britain more globally competitive.  This effort has crystallized in the last year under the coalition government led by Prime Minister David Cameron, whose dedication to bringing a “new economic dynamism” to his country offer a pretty good lesson in leadership for President Obama to study while he writes his State of the Union speech for January.

In his excellent speech in October, Cameron laid out an actual strategy (!) for growth that included fiscal discipline, increased investments in human capital and infrastructure, a renewed focus on exports and competitive advantage, and an effort to encourage new companies and innovation to drive growth.  Putting aside differences of opinion some may have about Cameron’s fiscal austerity, one thing this speech does offer that Warner and Mandel can both love, and that White House advisors can learn from, is Cameron’s attitude about government regulation:

Successful, high-growth economies are like ecosystems –they are organic, evolve through trial and error and depend on millions, billions, of individual preferences, choices and relationships. Governments can expect to intelligently design all this as much they can expect to intelligently design the Great Barrier Reef.  But what they can do is create an environment in which businesses are confident enough to invest. . . . If we are to get back to strong growth, these profits need to turn into productive investment – and my message to you today is that we are providing the stability for that investment.

PPI strongly supports Senator Warner’s pay-as-you-go proposal as a long overdue approach to modernizing our regulatory system.  Both Warner’s proposal and Mandel’s countercyclical regulatory approach are helpful starting points for a discussion about how to make institutional changes that create a consistent method of scrubbing stale and ineffective regulations out of the system to make way for new rules better tailored to today’s economy.

PPI has supported a number of structural reform proposals to our regulatory system, like creating a review board that periodically submits a list of regulations for repeal to Congress for an up-or-down vote, much like the BRAC base-closure process.  We have also recommended that OMB conduct “innovation impact studies” for new agency rules to measure the regulatory footprint imposed on innovative ecosystems in the economy, the same way we conduct environmental impact studies.  OMB’s Office of Information and Regulatory Affairs (OIRA) would be a natural fit to take charge of such an effort, not only because of its institutional competence in reviewing agency rules, but also because its current Administrator, Cass Sunstein, could seek advice from his friend and co-author of Nudge, Richard Thaler, who serves as a lead advisor to the British government in its regulatory reform efforts.

As usual, Warner brings an invaluable perspective and fresh thinking to the Senate, and Democrats would be smart to showcase his creative thinking the same way Republicans thrust younger members like Paul Ryan into the spotlight.

Senator Warner is right to propose this regulatory PAYGO legislation as a means to boost our economy when our other options for doing so effectively are starting to run thin.  Pointing across the pond for an example of smart reform policy is also dead-on, but perhaps he should also point President Obama to David Cameron’s October speech as an example of smart, strategic leadership.