Regulation

Yes, Romney and Obama, Government Regulation Encourages Outsourcing

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Foxconn workers

Yesterday, after Mitt Romney and Barack Obama expressed mock horror that any business would want to leave the good, old U.S. of A., I wrote about how politicians' games with the money supply breed sticker shock for consumers, which drives manufacturers to other countries in search of lower costs so they can hold the line on prices. But there are more straightforward ways politicians push manufacturers out the door, such as with burdensome regulations. The federal government has been minting new rules for businesses to follow at an accelerating rate in recent years. It should come as a surprise to exactly nobody that the rising cost of complying with those rules is a great incentive to move operations to jurisdictions where they don't apply.

The Competitive Enterprise Institute tells us that the federal government has been churning out "a new regulation at the rate of one every hour and 55 minutes." Last month, CEI's Wayne Crews told the House Judiciary Committee:

For the broader "significant" category of rules (economically significant rules plus rules considered officially significant for other reasons noted in E.O. 12866), Obama has issued 22 percent more final rules in his first four years than President Bush did. That's startling, considering 2012 isn't finished and considering the costly rules being held back by the administration.

Those regulations carry a price tag in terms of compliance. That price tag grows as the regulations accumulate into a hard-to-navigate web of red tape. How much does it grow? A report from the Manufacturers Alliance for Productivity and Innovation says:

Since OMB began compiling data on the cost of regulations in 1981, about 40,000 proposed and final regulations have been issued. Based on the data of cost and number of regulations, we estimate the current direct cost of compliance with "major" regulations (those with an estimated cost greater than $100 million) issued between 1993 and 2011 to be between $265 billion and $726 billion (in constant 2010 dollars) a year for the economy as a whole.

The graph below plots compliance costs in constant 2001 dollars. The Matterhorn-like growth is as important as the numbers, since it portrays a nearly unbroken escalation in regulatory costs in the U.S. — especially for business people planning their future efforts.

Regulatory costs

What are the biggest offenders in terms of expensive regulations? MAPI, again:

  • The Environmental Protection Agency (EPA) imposes the largest number of regulations on the manufacturing sector with respect to number of regulations (972 regulations in total, including 122 major regulations), followed by the Departments of Transportation (880 regulations in total, including 69 major regulations), Labor (214 regulations in total, including 27 major regulations), and Energy (106 regulations in total, including 17 major regulations).
  • The EPA also imposes the largest regulatory burden on the manufacturing sector with respect to cost of major regulations ($117 billion in constant 2010 dollars), followed by the Departments of Transportation ($25 billion in constant 2010 dollars), Health and Human Services ($10 billion in constant 2010 dollars), and Homeland Security ($7 billion in constant 2010 dollars).

I should add that it doesn't matter whether you think any specific regulation is good or bad in terms of the deterrent effect the cumulative costs pose to anybody considering future investments. Compliance costs are enormous, and they make it attractive to look elsewhere when a company considers where to locate a factory.

China isn't stealing jobs and industries from the U.S.; American politicians are pushing them out the door.