Regulatory reform is all the rage. Congress is currently considering more than 20 bills to change the regulatory process. State governments have joined in, passing reforms of many different shapes and sizes in recent years.

On its surface, this is an easy phenomenon to understand. Regulations impose significant economic costs (while also delivering significant benefits). They are promulgated largely by unelected officials in executive branch agencies. Regulatory reforms are intended to increase democratic oversight over an important policymaking tool.

But there is a problem with that explanation: it is contingent on the supposition that regulatory reforms actually have an effect on the regulations they are designed to affect. Most academic studies of the role that reforms have played in regulatory decisionmaking have found that this role is limited.

Many of those studies have looked at reform at the federal level. Requirements for public participation in the regulatory process often lead to many public comments on agency proposals, but few proposals are changed significantly in response to the comments. Requirements for economic analysis have done little to improve the efficiency of regulations. Other efforts, such as requiring negotiation, analysis of impacts on small businesses, and regulatory “look-backs” to gauge rule efficiency and effectiveness have had similarly limited effects.

At the state level, we looked at 28 states in an aggregate analysis and one state—New Jersey—in detail (see “Lessons from New Jersey,” Spring 2011) and our findings echoed the studies of the federal government. The best predictor of the volume of regulation in a state had nothing to do with the presence or absence of reforms. It was instead the political preferences of state legislatures. If legislatures were controlled by Democrats, state agencies issued more regulations. The reason for this is simple: Democrat-controlled legislatures were more likely to pass laws that required regulatory action by agencies. No changes to the regulatory process can outweigh that factor.

Politics and ‘reform’ / We have had more than 30 years of experience on the federal level of continuous changes to the regulatory process. You would think that, by now, legislators and executives would have learned that procedural changes aren’t going to have a significant influence on agency regulatory decisions. So why do lawmakers keep implementing such changes? In our recent book, The Politics of Regulatory Reform, we sought to answer that question.

After examining a number of possible explanations for regulatory reform and finding them wanting, we turned to a detailed case study of two states where regulatory reform has been the norm over the past three decades. Arguably, the regulatory processes in Pennsylvania and North Carolina are more complex and have more veto points than even the federal process. Both states have examples of legislative review of regulations, executive review of regulations, and requirements for economic analysis. Both states also have quasi-independent regulatory review bodies: the Rules Review Commission (RRC) in North Carolina and the Independent Regulatory Review Commission (IRRC) in Pennsylvania.

Both states share another important property: they have experienced three roughly simultaneous “surges” of regulatory reform. In the early 1980s, Pennsylvania set up regulatory review procedures within the executive branch, in both the Attorney General’s Office and the Office of General Council (OGC). Pennsylvania also created the IRRC. Meanwhile, in North Carolina, the RRC was created after an aborted attempt to house regulatory review in the legislature.

The early to mid-1990s saw the next surge of regulatory reform. In Pennsylvania, that took the form of establishing review in the Governor’s Office via executive order. In North Carolina, a legislative review process was created and the first requirements for economic analysis of regulation were instituted. Both states then remained relatively quiet until the late 2000s, when numerous regulatory reform proposals were brought before the two state legislatures. Gov. Bev Perdue (D) strengthened executive branch review in North Carolina and the legislature followed in its current session by enacting a series of new requirements for regulatory agencies. In Pennsylvania, the latest wave of regulatory reforms resulted in an increase in the number of impact statements required, and a number of regulatory reform bills are still being considered.

The first thing to notice about the pattern of regulatory reform in the two states is that all three waves took place during economic downturns. That roughly mirrors the enthusiasm for regulatory reform at the federal level. We hypothesized that this timing is far from coincidental. Incumbent political officeholders know that one of the most important factors that voters use to judge them is the state of the economy (and, relatedly, the voters’ own economic well-being). However, the number of steps that most incumbents can take to affect the economy is limited. So they need to convince their constituents that they are doing something.

As a result, many politicians look for a scapegoat for poor economic conditions and many settle on regulation. One might ask, if regulation is to blame for poor economic conditions, then why don’t legislators work on repealing regulations? While some take that step, it is a politically risky strategy. Removing regulations designed to protect public health or the environment exposes an incumbent to attacks from advocates for those causes. Furthermore, existing regulations may actually have support in the incumbent business community because they serve as a barrier to entry for new firms.

But regulatory reform is a way to seemingly respond to poor economic conditions by attacking regulation without bearing the political costs of doing so. By the time anyone can judge whether or not the reforms are effective, the sponsors of the reforms have been taking credit for them for years (and hopefully the economy has improved!). In addition to the timing of regulatory reform in the two states, interviews with former and current legislators and executive branch employees helped corroborate this hypothesis. Repeatedly, they referred to poor economic conditions at the time of enactment and the “need to do something.”

But there is more to the desire to enact regulatory reforms than this form of “credit claiming.” Regulatory reforms also provide an innovative way for political officeholders to perform constituent service. The evidence for this argument comes not so much from stories about the enactment of the regulatory reforms in Pennsylvania and North Carolina, but from the ways the reforms were used once they were in place. In both states, politicians used the institutions created by regulatory reforms to intervene on behalf of constituents during particular regulatory proceedings.

One story from Pennsylvania is particularly instructive: An IRRC commissioner told us that the agency “absolutely can be a shelter for the legislature. By writing a letter to the IRRC, it is a great way of showing a constituent ‘I am fighting for you.’ It makes the constituent happy.” He then shared this encounter:

I once got a letter from a legislator and I happened to run into him at an event and mentioned that I had received his letter and was taking his concerns very seriously. He then told me: ‘Don’t worry about what’s in the [letter]. I don’t care what you do.’ He was actually surprised I was taking it seriously.

All the legislator cared about was the appearance that the letter conveyed to his constituent.

Interest group representatives confirmed this notion. They readily disclosed how, upon being faced with failure at the agency level to get their concerns heard, they would contact sympathetic legislators and ask them to assist by filing a comment or appealing to the independent rule review authorities. Those authorities often had “legislative intent” as one of the concerns they were statutorily bound to evaluate, and therefore a letter from a legislator was very useful.

Revenge of the political scientists / As we started out this research, we had few prior beliefs about the motivations for regulatory reform. But as we studied the futility of many of the reforms and talked to the legislators and executive branch officials responsible for their enactment, we thought back to classic political science works we read in graduate school. In particular, two works from the 1970s—David Mayhew’s Congress: The Electoral Connection and Morris Fiorina’s Congress: Keystone of the Washington Establishment—seemed to do more to explain regulatory reform than many of the explanations given by advocates on either side of the issue.

Mayhew argued that politicians (he focused on Congress, but the conclusions are broadly applicable) pursue reelection in three ways: The first is “credit-claiming,” and Mayhew offers an excellent summary of how proponents of legislation use their advocacy to buttress their credentials for improving the economy during economic downturns. The recent wave of more than 20 regulatory reform measures before Congress provides additional evidence for this motivation.

The second way politicians pursue reelection is through constituent service. Fiorina expanded upon this idea in his book, arguing that Congress created bureaucracies that would naturally, on some occasions, frustrate their constituents. When those frustrations occurred, constituents would then turn to their elected representatives, who could secure the voters’ undying gratitude by intervening on their behalf. Fiorina was describing the social welfare bureaucracies that allocate benefits, but his logic applies equally to regulatory bureaucracies. Regulatory reforms, as seen in Pennsylvania and North Carolina, are used by incumbent politicians to help (or to give the appearance of helping) constituents and potential donors who voice complaints about regulatory proposals.

We want to emphasize that playing a political role is not necessarily a bad thing. In a democracy, facilitating involvement by elected officials in decisions made by unelected officials has clear benefits. But regulatory reforms need to be understood in this way, not as improving efficiency, reducing burden, or the many other rhetorical flourishes that often accompany their proposal. The politics of regulatory reform is far more about politics than about regulation.

Readings

  • Congress: Keystone of the Washington Establishment, by Morris P. Fiorina. Yale University Press, 1989.
  • Congress: The Electoral Connection, by David R. Mayhew. Yale University Press, 2004.
  • “Cost Benefit Analysis: Legal, Economic, and Philosophical Perspectives: State and Federal Regulatory Reform: A Comparative Analysis,” by Robert W. Hahn. Journal of Legal Studies, Vol. 29 (2000).
  • “Formal Procedures, Informal Processes, Accountability, and Responsiveness in Bureaucratic Policy Making: An Institutional Policy Analysis,” by William F. West. Public Administration Review, Vol. 64 (2004).
  • “Lessons from New Jersey,” by Stuart Shapiro and Deborah Borie-Holtz. Regulation, Vol. 34, No. 1 (Spring 2011).
  • The Politics of Regulatory Reform, by Stuart Shapiro and Deborah Borie-Holtz. Routledge, 2013.
  • “The Triumph of Regulatory Politics: Benefit Cost Analysis and Political Salience,” by Stuart Shapiro and John F. Morrall III. Regulation and Governance, Vol. 6 (2012).