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Want to Address Economic Inequality? Strengthen the Regulatory System

Responsive Government

The growing problem of economic inequality in the United States continues to draw significant attention – and for good reason. By 2011, America’s top 1 percent owned more than 40 percent of the nation’s wealth, and ours ranks as one of the most unequal economies among developed countries. Meanwhile, the median wage rate for workers has remained largely unchanged in real terms over the last 40 years – even as worker productivity has grown at a steady clip – contributing to the largest gap in decades between high-wage earners and the rest of us. 

Several critical legal, social, and political institutions play a role in contributing to and reinforcing the growing chasm that separates the wealthy few from the rest of us. One that is overlooked, but no less important, is the U.S. regulatory system. 

When working properly, the regulatory system implements safeguards that help ensure that businesses bear the costs associated with their profit-making activities, rather than shifting them onto neighbors, consumers, or workers in the form of pollution, dangerous products, or hazardous working conditions. In doing so, the regulatory system serves as a crucial bulwark against economic injustice. 

In contrast, weak or nonexistent regulatory safeguards have a distinctly regressive effect. By not complying with these safeguards, the money a company would have spent on preventing pollution-caused cancers in fenceline communities or equipment-related amputations among workers ends up in the pockets of top executives and shareholders as annual bonuses and quarterly dividends. Because the consumers and workers who bear the disproportionate costs of deregulation tend to be on the bottom rungs of the economic ladder, this produces a forced wealth transfer from poor to rich – regressive in nature and often mammoth in scale. 

Put differently, weak regulatory safeguards function as a kind of tax on the poor and middle class. The “revenues” generated by this tax come in the form of avoided compliance costs for politically powerful corporate interests, and this windfall effectively functions as a government-backed subsidy that financially rewards their unacceptably harmful products or actions. 

The effects of inadequate regulation can be especially devastating for low-income families or for small businesses operating on a thin margin, since they typically have fewer resources at their disposal to successfully adapt to or absorb the resulting hardships. For example, those who work in low- or minimum-wage jobs rarely have paid sick leave. Missing several days of work can be economically ruinous for these individuals and their families, as they might lose their jobs and harm their future employment prospects if they or a family member becomes ill. 

At the same time, low-income individuals often face greater risks to their health and safety. For example, many low-paying jobs, such as working in poultry processing plants, tend to carry high risks of injury and death. Meanwhile, many low-income communities endure disproportionately greater levels of air and water pollution. For example, a 2012 study found that the air in low-income communities contained greater concentrations of hazardous air pollutants than air in higher-income neighborhoods. This is unsurprising because low-income communities are often right next door to heavy manufacturing plants. 

In the worst cases, weak regulatory protections serve to reinforce the historical and institutional forces that have pushed many people into poverty in the first place. The nation has watched this pattern unfold in dramatic and heartbreaking fashion during the ongoing Flint water crisis. The myopic decision by the state’s emergency managers to switch the city’s drinking water source without taking adequate precautions exposed the community’s children to unhealthy levels of lead. Researchers found that the number of Flint children with elevated blood lead levels – high enough to cause significant IQ loss and permanent behavioral problems, including shortened attention spans and increased antisocial behavior – nearly doubled after the city’s water source changed, with children in the most impoverished areas suffering disproportionately. 

What’s true in Flint is true across the country: The heavy pollution burden that afflicts the communities in which low-income children often live presents yet another obstacle they must overcome on their journey to building a better life.   

Working with their politician allies, corporate interests have spent the last few decades hijacking the process by which regulatory safeguards are developed. Having failed years ago to defeat landmark legislation like the Clean Air Act, the Clean Water Act, and the Food, Drug and Cosmetic Act, this unholy alliance of business and political heavyweights is intent on blocking the regulations that breathe life into such laws. Along the way, they’re reprogramming the entire system so that it is rigged to produce results that promote industry profits at the expense of the public interest. With almost loaded-dice consistency, the heavily tilted process now serves primarily to block, delay, or dilute new regulatory safeguards, rather than instituting the kind of strong protections Congress enacted. 

One of the key strategies in the corporate campaign to sabotage the regulatory system has been to overload the rulemaking process with a convoluted tangle of analytical and procedural hurdles that agencies must overcome before issuing final rules. The resulting morass of duplicative and unnecessary requirements serves only to waste scarce agency resources and delay pending safeguards – if not discourage agencies from undertaking new rulemakings altogether. 

According to one count taken in 2000, an agency could be subject to as many as 110 separate procedural requirements in the rulemaking process. The problem of excess procedural requirements has only grown worse since then. And to be clear on who’s loading on these requirements: It’s the so-called “small-government” conservatives. As these requirements have continued to accumulate, agency resources have remained stagnant or even shrunk in real terms, effectively forcing agencies to do more with less. 

Because the rulemaking process has become so ossified by needless procedures and analyses, it is not uncommon for larger rulemakings to take several years – if not more than a decade – to complete. In March, the Occupational Safety and Health Administration (OSHA) completed a rulemaking to better safeguard workers against harmful silica dust that had been in the works for 45 years. Meanwhile, companies in such diverse industries as construction and fracking raked in big profits as their workers continued to toil at worksites enveloped in clouds of toxic silica dust that killed hundreds of workers a year. 

Corporate interests have also become adept at dictating the substance of final rules by dominating the myriad public participation opportunities built into the rulemaking process. Drawing on their superior resources, wealthy businesses and their sophisticated networks of trade groups use these opportunities to bury agencies in comments, data, and reams of supporting analyses. Often of dubious relevance, many of these submissions are primarily aimed at overwhelming resource-strapped agencies and drowning out the voices of the public and the public interest community. And, because public interest groups lack the resources to take advantage of every public participation opportunity for every rulemaking, industry often faces no opposition in its efforts to unduly influence regulatory outcomes. In these cases, the only voices that an agency will hear on the pending regulation belong to industry lobbyists looking to protect corporate profits by watering down the rule’s protections. 

Several empirical studies confirm the extent of industry dominance of the rulemaking process. In a 2011 study, CPR Member Scholar Wendy Wagner and her co-authors examined 39 hazardous air pollutant rulemakings at the EPA. They found that industry interests had an average of 84 contacts per rule, while public interest groups averaged 0.7 contacts per rule. These contacts included meetings, phone calls, and letters. 

A 2011 CPR paper examined the extent of industry dominance at the Office of Information and Regulatory Affairs (OIRA), a powerful bureau located in the White House that is charged with reviewing and approving new rules. Over the roughly ten-year period covered in the paper, OIRA hosted 1,080 meetings with 5,759 appearances by outside participants. Sixty-five percent of the participants represented regulated industry interests; just 12 percent of participants appeared on behalf of public interest groups. 

Evidently, even this level of dominance is not enough for corporate interests, as they continue to look for new ways to transform the U.S. regulatory system into an instrument for achieving their “reverse Robin Hood” objectives. Over the past few years, they have lobbied for such bills as the Regulatory Accountability Act, which would add dozens more analytical and procedural requirements – all needless – to the rulemaking process, and the REINS Act, which would empower one chamber of Congress alone to torpedo pending rulemakings just before they cross the finish line. With these measures in place, profitable businesses would enjoy even greater freedom to squeeze out more black ink on their quarterly reports by shifting the burden of their harmful activities to those who can least afford it. 

As originally conceived, the U.S. regulatory system was meant to serve as a critical component in the social safety net that softens the landing of those who suffer economic misfortune. It would be one of the truly perverse injustices in our nation’s history if our system of regulatory safeguards were to become a weapon that could be freely wielded by powerful economic interests against low- and middle-income families and small businesses. 

Fortunately, our regulatory system can still work for the American people. The first and more immediate step is to defeat the self-serving anti-regulatory bills that conservative members of Congress and their corporate beneficiaries have been pushing in recent years. The second and longer-term step is to push for affirmative reforms aimed at revitalizing and energizing the regulatory system so that protector agencies like the Environmental Protection Agency (EPA), the Food and Drug Administration (FDA), and the Consumer Product Safety Commission (CPSC) are able to carry out their statutory missions of safeguarding people and the environment in a timely and effective manner. These reforms will include eliminating the wasteful procedural requirements that have bogged down the rulemaking process, as well as securing guaranteed sources of funding that will provide agencies with the resources they need to effectively do their jobs. 

With these steps, the regulatory system can once again focus on advancing the public interest, rather than the narrow interests of wealthy corporations, and can serve as a vehicle for economic justice, rather than as an intractable barrier to it.

Responsive Government

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