10 Facts About the Impact of Regulations on Manufacturing
Neither snow nor rain nor sleet – nor economic recessions nor financial collapse – halts the inexorable accumulation of federal regulations on manufacturing activity. That’s what we found when the Manufacturer’s Alliance for Productivity and Innovation (MAPI) teamed up with NERA Economic Consulting to measure how federal rules affect our sector.
Reviewing federal records going back three decades, NERA counted the regulations specifically targeting manufacturers, categorized them by agency, and measured their impact in the aggregate and by industry. While manufacturers instinctively know that their regulatory burden is growing, our findings make it clear that the regulatory system is at best unbridled and at worst dysfunctional. Based on our research, here are 10 facts that policymakers should know about the impact of regulations on the American factory sector.
Since 1981, the federal government has promulgated more than 2,300 regulations specifically targeting manufacturers – some broad and expensive and others narrowly focused on a specific subsector. That comes out to an average of just under 1.5 manufacturing-related rules issued each week by federal agencies for more than three decades. No wonder manufacturers see the current regulatory regime as death by a thousand cuts.
Since 1998, we’ve had a 44% increase in the number of regulations affecting manufacturing. Because of two severe recessions, however, manufacturing output increased only 12% over that time. There is obviously no political or managerial discipline in the system. For a country that can’t jump-start its economy and can’t create jobs, this is like shooting ourselves in the foot.
During the same 15-year period when the number of manufacturing-specific regulations was increasing by 44%, manufacturing employment dropped from 17 million to 12 million. While many factors were involved in this massive loss of jobs, the relentless climb in the regulatory burden must be viewed as a major contributing factor.
The average number of all major rules (those judged to have an annual economic impact of $100 million or more) has climbed successively over the past three administrations. President Clinton’s administration averaged 36 major regulations each year. During the George W. Bush years, the average rose to 45 per year. Now, under President Obama, the number of major regulations implemented has jumped to an average of 75 per year.
Of the 2,300 regulations that specifically target manufacturers, almost 90% are not considered major, meaning that no cost-benefit analysis was required by a federal agency before the laws were finalized. In effect, the vast majority of manufacturing-specific regulations get layered, one on top of another, in virtual anonymity.
While there is no official estimate for the economic impact of regulations with an impact of less than $100 million, their sheer volume means they may impose considerable cost in the aggregate. In other words, while each regulation may be relatively small when analyzed in isolation, the sum of their impacts could be comparable to the effects of major regulations. This is something the Office of Management and Budget should consider when measuring the costs of regulations to society.
During the period of 1993-2011, the Environmental Protection Agency issued the greatest number of manufacturing-specific rules, with a whopping 972. The Department of Transportation was a close second with 880, followed by the Department of Labor (214) and the Department of Energy (106).
During that same time, the EPA’s manufacturing-specific regulations on the whole cost the sector far more money in lost output than any other agency’s rules – $117 billion in all, much of this a consequence of Clear Air rules. This is more than the cost of regulations issued by the Departments of Transportation, Health and Human Services, Homeland Security, Energy and Labor combined.
Manufacturing-specific regulations are projected to reduce factory output in the U.S. by up to 6% over the next decade. While all industries are affected, those that are energy-intensive are hit the hardest. Petroleum refining could see output reduced by as much as 10%, chemicals by up to 9%, transportation equipment by up to 9%, aluminum by up to 8% and iron and steel by up to 7%.
Without all of the regulations on manufacturing since 1993, shipments would have been significantly higher. Manufacturing-specific regulations are projected to have reduced manufacturers’ shipment value in the U.S. by $500 billion in 2013 compared to what they would have been without them. This includes shipments decreasing in the chemical industry by as much as $91 billion and in the petroleum refining industry by as much as $67 billion.
Highlighting the growing regulatory burden on American manufacturers does not equate to calling for the eliminating of regulation. Health and safety rules obviously have a critical role to play in an increasingly complex economy. Manufacturers simply need a more cost-effective, coordinated, transparent system through which federal agencies issue rules targeting their operations.