Regulations
Edwin L. Behrens Procter & Gamble Co. 1801 K Street, N.W. Washington, D.C. 20006
Regulatory Impacts a n d the N e e d for Reform Most of the past articles in this column have dealt with the widespread growth of regulations affecting science. This article will attempt to put some perspective on the growing cost impact of regulations and on efforts toward regulatory reform. It is important that scientists become aware of regulatory reform so they can provide input into this process to ensure that the necessary benefits of regulations and cost impact on chemical growth are optimized. Recently the federal regulatory process has become the focus of intense review in Washington. Several major legislative initiatives are being developed in key Congressional committees, while the Administration has issued a series of executive orders and instituted other administrative changes intended to achieve bettercoordinated, more efficient or costeffective regulations. Business leaders and government policymakers have begun to recognize the accumulating costs of regulations and their adverse impact on productivity, innovation, and economic growth. Leading economists such as Charles Schultze, Chairman of the Council of Economic Advisors (CEA), and Edward Denison of the Department of Commerce, and others, ranging from Murray Weidenbaum and James Miller at the American Enterprise Institute (AEI) to Robert Crandall and Lester Lave at Brookings, have long been documenting the impact of regulations on the economy or expressing their concern about the need for change. They have been calling for various regulatory improvements or even recommending that nonregulatory alternatives be applied in the pursuit of appropriate social goals. Recent issues like saccharin and nitrites have highlighted fundamental conflicts between the desire and need of statutory-based agencies to "protect" the public and the public's own desire for "protection." Correspondingly, public concern about the need for meaningful protection from 0003-2700/80/0351-775A$01.00/0 © 1980 American Chemical Society
toxic materials capable of generating adverse chronic health effects and disease are confounded by the inability of regulatory agencies to apply rational and consistent judgment, particularly where the direct effect of any exposure to humans is not determinable scientifically and mechanisms linking probable cause and effect are unknown. Contributing to this problem have been the phenomenal advances made by analytical chemists in their ability to detect the presence of potentially toxic materials at remarkably low levels. Public interest advocates express their concern about alleged anticonsumer and other biases on the part of agencies responsible for economic regulation. Small business has felt abused, claiming that technological requirements (e.g., mandated safety testing, engineering compliance standards) and paperwork favor their larger competitors. The judicial system has begun to express its concern about the workload imposed by the litigation of regulations and the technical and economic complexities of the issues involved. So it is no wonder, with this chorus of concerns expressed by a variety of constituent groups, that the various functions of representative government have begun to respond. Many of these problems result from structural deficiencies in the regulatory processes, or exist because of conflicts or limitations imposed by the underlying statutes themselves. They do not reflect adversely upon the performance and good efforts of thousands of individuals employed by the agencies any more than the low rating, which the American public perennially awards Congress, is intended to apply to each individual member. For the most part, they are recognized for their hard work and are held in good esteem. Neither, for the most part, do the present regulatory reform efforts challenge the appropriateness of social goals, such as the desirability of clean air and an improved environment, but
they do question the means by which these goals are being achieved. Three basic issues are being debated within the broad context of regulatory reform. The first involves the appropriate role of government in economic regulation (e.g., air, rail, and truck regulation, and rate-setting where it affects the cost of movement of raw materials or finished products). The second involves the question of agency accountability and whether agency actions should be subject to either political overview and control (e.g., "One House Veto" by either the Senate or House of any agency rule, rather than requiring an act of Congress and all the procedural requirements that are presently involved in overturning a rule promulgated by an agency) or an increased burden of proof during any judicial review of an agency's actions. (This is the thrust of the so-called Bumpers Amendment that passed the Senate earlier this Congress. It would remove the presumption of "validity" for agencies appearing before a court and require them to prove by "substantial evidence" that they acted validly in issuing a rule.) The third issue attempts to address deficiencies in the rule-making process itself. The remainder of this discussion will focus primarily upon this latter issue. Before discussing the status of present regulatory reform efforts, as well as attempting to identify other regulatory issues that still need to be addressed and resolved, it may be helpful to attempt to quantify the cost and beneficial impacts of federal regulations. EPA, in a recent report to the Congress, (2) reported that the annual cost of pollution control due to federal regulations was estimated to be $23 billion in 1977 (or about 1 percent of the gross national product (GNP) for that year). EPA further estimated the cumulative cost from 1970 to 1977 at $84.8 billion, but projected the cost over the period from 1977 to 1986 at $360 billion! These are for environ-
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mental regulations alone, of course. Another study by DeFina (2) of the Center of American Business at Washington University concluded that, for calendar year 1978, regulatory agencies themselves incurred costs of $3 billion with another $62 billion incurred by various industries and institutions in complying with the regulations. T h a t combined level of regulatory-related costs was equivalent to 3.6 percent of the G N P . (For perspective, combined expenditures for research and development by industry and the federal government in 1978 were estimated to total $50 billion. Based on downward trends, total R&D expenditures constitute only about 2 percent of the G N P ! (3,4)) Weidenbaum has estimated t h a t "for fiscal 1979, the sum of the administrative and the compliance costs may top $100 billion" (5-7) or about 5 percent of the G N P . In separate studies, the Hospital Association of New York State reported t h a t "25 percent of hospital costs are attributable to meeting government regulatory requirements," (8) while the Business Roundtable (BRT), an association of chief executives of 180 large corporations, attempted to determine extraordinary costs in complying with specific regulations of six federal agencies for 1977. For the 48 companies involved in the study, the direct, incremental costs, that is, those costs resulting from actions t h a t would not have been incurred in the absence of regulations, totaled over $2 billion (with EPA regulations accounting for more than 75 percent of the total) (9). T h e Dow Chemical Co. made an attempt to determine which regulatory costs incurred by Dow were appropriate and which were excessive. Accepting the subjectivity inherent in such assessments, Dow concluded t h a t $69 million of their $186 million regulatory-generated costs for 1976 were "excessive" (10). T h e Dow and B R T studies address an important consideration; t h a t is, while the total cost of regulation is important to know, given its magnitude and likely impact on the U.S. economy, magnitude is only one dimension of cost. Because the appropriateness of many of the costs associated with regulation are obvious, the funds would have been invested even in the absence of any underlying regulatory requirements. Other costs are associated with laudable social goals t h a t are accepted as appropriate expressions of public intent. There is another dimension, however, and t h a t is the unnecessary costs associated with regulatory redundancy and the potential inefficiency of ill-conceived or less t h a n cost-effective regulatory initiatives. It is just prudent that, as a mat-
ter of policy, the sums involved in responding to regulatory requirements be invested consistent with some overall set of national priorities and t h a t they be well spent in order to ensure society its greatest return for its regulatory dollar. T h a t prudence is warranted, particularly during a period of inflationary crisis and declining productivity, can be demonstrated. Denison has assessed the impact of recent years' regulatory investments to protect the physical environment and worker safety and health on productivity and economic growth (77). He concluded that, between 1967 and 1975, environmental regulatory requirements diverted nearly 1 percent of total (nonresidential) business investment to pollution abatement, which resulted in no increased national output. (Intangible gains, such as cleaner air, are not included in the measurement of national output.) Investments for worker safety and health reduced measured output by another 0.42 percent per unit of input. George Eads, now a member of the Council of Economic Advisors, pointed out in assessing the impact of regulations on the chemical industry t h a t these reductions represent "fully a 25 percent reduction in the economy's long-term rate of improvement in output per unit of i n p u t " (72). W h a t about the beneficial effects of regulation? Clearly the Congress, the agencies, the courts, broad segments of the American public, and even entire industries have long supported regulatory approaches as a legitimate means for achieving certain national objectives. It is an oversimplification, even a distortion of the issue, to merely question whether there are regulatory benefits or not (73). Certainly there are, just as there is a great deal of regulatory nuisance. There are also adverse and unanticipated side effects from otherwise well-intended regulatory efforts. T h e question of regulatory benefit has perhaps not been a compelling question in the past, but it is likely to become a more critical issue in the future. First, as regulatory costs constit u t e an increasing share of the G N P , their justification will be challenged because of competing demands for the same limited national capital and other resources. Second, some system for determining regulatory priorities across the entire federal government is inevitable, and one of the criteria in their establishment will have to be the relative size of the potential benefit t h a t society is likely to accrue from any given regulatory action. Third, particularly in areas affecting health, energy, and the environment, regulatory judgments are likely to be based
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increasingly on trade-offs involving relative risks and relative benefits. There will be difficulties, as benefits are difficult to assess. This is one of the reasons t h a t there has not been a comprehensive compilation to date, nor have comprehensive benefit estimation methodologies been widely applied to a contemplated regulatory decision. Furthermore, it is questionable that there is ever likely to be a sufficiently adequate compilation of explicit costs and benefits or other favorable and adverse impacts of any given rule to predetermine a given choice for a decision maker and avoid any need for judgment (14,15). It has been estimated, through the application of error analysis, t h a t cost/benefit analyses will generally have a precision of about one part in three, or one part in ten at the very best (76). Not only are there deficiencies in existing assessment methodologies, but many beneficial elements (as well as costs) of rule making are intangible, or involve second- and third-order effects, which cannot be quantified with any precision or assurance as to their validity. Where an assessment of benefits has been attempted, the inadequacy of data bases and incomplete methodologies has generally been recognized (77, 78). EPA has recognized the need to improve existing data bases for a better assessment in the future of both the costs and beneficial effects of regulation, but it is also recognized t h a t many benefits involve aesthetics or intangible values. It may be t h a t the best society can do is to require for most major regulatory proposals the conducting of a regulatory analysis of their likely, projected economic effects, including costs and benefits, and of the projected health, safety, environmental and other effects, both favorable and adverse. Both direct and indirect effects, including intangible impacts, such as the desirability of individual choice, should be included in these analyses to the best extent t h a t they can be identified. Alternative regulatory approaches should be considered, and their comparative effectiveness in meeting the intent of a proposed rule should also be assessed. Agencies should be required to ensure that, in addition to considering cost/effectiveness in the selection of a rule, the beneficial effects of the rule should be reasonably related to its overall societal costs. I do not propose t h a t detailed criteria be developed to govern the agencies' determination of what constitutes a reasonable relationship, nor do I necessarily propose t h a t a formal cost/impact analysis be done in every instance. B u t for those proposed regulations t h a t are likely to impose substantial costs upon the na-
tional economy (and particularly those for which valid questions can be raised as to whether the regulation is likely to do any good at all), some balance is warranted. This article has attempted to introduce analytical scientists to the growing costs of regulations and current regulatory reform activities. Those that are and will be impacted by regulations must understand and support regulatory reform. Currently, the ACS is actively participating by providing input to various agencies to help ensure the best and most cost-effective regulations. How the present Administration in Washington has attempted to address these issues, and how they are being addressed by the Congress will be discussed in a subsequent article. Also addressed will be selected new issues, such as the need to better separate scientific determinations from regulatory or societal considerations in the development of regulatory policies, particularly as they relate to possible health implications. Furthermore, there is the need to ensure that the scientific judgments are rendered by the most eminent scientists available to the nation. A proposal for how this might be achieved will be discussed in the subsequent article.
and Product Development," (February 1979), Paper presented at the American Chemical Society Symposium on the Effects of Government Regulation on Innovation in the Chemical Industry, Miami, Sept. 14,1978. (13) Center for Policy Alternatives at the Massachusetts Institute of Technology, "Benefits of Environmental, Health, and Safety Regulation." (Prepared for the U.S. Senate Committee on Governmental Affairs), U.S. Government Printing Office, Washington, D.C. (1980), p 1. (14) Center for Policy Alternatives at the Massachusetts Institute of Technology, "Benefits of Environmental, Health, and Safety Regulation." (Prepared for the U.S. Senate Committee on Governmental Affairs), U.S. Government Printing Office, Washington, D.C. (1980).
(15) Committee on Principles of Decision Making for Regulating Chemicals in the Environment, Decision Making for Regulating Chemicals in the Environment, National Academy of Sciences, Washington, D.C. (1975), p 39. , (16) Rowe, W. D., "Risk Assessments, Approaches and Methods," in "Energy Risk Management," W. D. Rowe and G. T. Goodman, Eds., Academy Press, London, 1979. (17) Environmental Protection Agency, "The Cost of Clean Air and Water: Report to Congress," (EPA-230/3-79-001) (August 1979) p xiv. (18) Green, M., Waitzman, N., "Business War on the Law: An Analysis of the Benefits of Federal Health/Safety Enforcement," The Corporate Accountability Research Group, Nader, 1979.
References (1) Environmental Protection Agency, "The Cost of Clean Air and Water: Report to Congress," (EPA-230/3-79-001) (August 1979). (2) DeFina, Robert, "Public and Private Expenditure for Federal Regulation of Business," Center for the Study of American Business, Washington University Press, St. Louis, (Working Paper 22) (November 1977). (3) "Innovation on Private Investment in R&D: A Statement by the American Chemical Society," Chem. Eng. News (April 30,1979). (4) "The Impact of Regulation on Industrial Innovation," A report by the National Academy of Sciences, Washington, D.C., 1979. (5) From a statement prepared by the Manufacturing Chemists Assoc, for presentation to Secretary of Commerce, Juanita Kreps, Nov. 14,1978. (6) Weidenbaum, Murray, "How Much Regulation Is Too Much," New York Times (Dec. 17,1978). (7) Weidenbaum, Murray, "The Continuing Need for Regulatory Reform," Testimony prepared for the House of Representatives, Committee on Interstate and Foreign Commerce, Washington, D.C. (Oct. 24,1979). (8) From a report of the HANYS Task Force on Regulation. (9) Roberts, John A., "Regulation—Reform is Overdue," Context, 8 (3), 2 (1979). (10) Bevirt, Joseph, "How Much Federal Regulations Cost Dow," Chem. Eng. Progress (May 1979). (11) Denison, Edward F., "Effects of Selected Changes in the Institutional and Human Environment upon Output per Unit of Input," Survey of Current Business, 58 (1), 21-44 (1978). (12) Eads, George, "Chemicals as a Regulated Industry: Implications for Research
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f
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Water Content, % W/V By ReAquant By KF Titration Titration 2.33 2.43 0.82 0.85 2.27 220
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