How to Dismantle the Regulatory State

 

REGULATION STUNTS OUR ECONOMY AND HURTS
CONSUMERS. HERE’S WHAT TO DO ABOUT IT.

South Carolina, like the rest of America, is suffering from burdensome regulation on individuals and businesses. But while every state suffers from excessive regulation from Washington, South Carolina is actually adding to the burden, not easing it.

Virtually everyone in “red state” South Carolina agrees, or professes to agree, that reducing the overall level of regulation would directly and significantly improve the state’s economic prospects. Yet there is fierce resistance to regulatory reform inside the State House – resistance that’s largely generated by special interests.

Before analyzing what can be done, it’s important to clarify the goal. In an improved regulatory environment, all individuals and businesses would be faced with uniformly low levels of regulation. No business would receive special statutory privileges. Entry into any industry would be unrestricted by artificial barriers, and consumers would be free to patronize those individuals and businesses they saw worthy of their dollars rather than being prevented from engaging in trade with those deemed unfit by the state. Business costs would be lowered and the level of productivity would rise throughout the state economy.

There are essentially three barriers to this goal.

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The first barrier: occupational licensing laws

South Carolina has the tenth most extensive occupational licensing laws in the country. Why is this important? Put simply: occupational license laws reduce competition by creating artificial cost barriers to entry into industries; they thereby force wage rates upward for those that do successfully hurdle the barriers and impose higher costs on the consumer.

Licensing laws raise both the monetary and time costs of entering an industry by requiring both certain hours of training and licensing fees. It’s important to note that while the general effect of these laws is to lower the level of competition in an industry, their specific effect is often to exclude the least well off entrepreneurs who are least able to afford the increased costs from entering the industry. Finally, it’s far from clear whether licensing laws even improve quality of service – which is allegedly their entire purpose. This apparent irony meets the demands of common sense, however, since one would expect quality of service to diminish along with decreased competition.

The market already provides a direct test of businesses’ and individuals’ reliability on the market; those that satisfy consumers will make profits and prosper while those that don’t will experience losses and fail.

The solution here is straightforward: repeal occupational licensing laws in the state law code (title 40), particularly those regulating occupations that present little direct threat to a consumer’s health or safety. The market provides the needed test for the suitability of individuals to their professions, and any attempted tweaking (rather than repeal) of existing laws is unlikely to remove the laws’ harmful consequences. Lawmakers should at the same time stop introducing new bills to regulate such “dangerous” professions as hair braiding and interior design.

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The second barrier: regulation by unaccountable agencies.

One of the prime reasons for the high level of regulation in South Carolina – and indeed across the U.S. – is the relatively unchecked power of executive agencies to craft state law in the form of regulation. Regulatory law does not receive anywhere near the level of attention it deserves in the General Assembly. As things currently stand, executive agencies can publish regulations, after which the proposed regulation must be submitted to the proper House and Senate committees for consideration. However, if the regulation is neglected by the legislative committees for 120 days, it automatically becomes state law. This is a serious separation of powers issue that allows government bodies other than the legislature to promulgate law, and the result is more regulation over the private sector. When regulations can become law without legislative debate, they are guaranteed to multiply.

The way to knock down this barrier is equally straightforward:Require a legislative vote on every regulation and enact a sunset provision

Every proposed regulation should receive an up or down vote in the state legislature before it can become law. Further, this vote should take place only after the issuance of a report that estimates the proposed governmental and private costs of enacting the new regulation. Finally, South Carolina should adopt a sunset provision that requires that all existing regulations be phased out after a fixed amount of time (typically three to five years) unless they are renewed by vote in the legislature. Studies have shown that the sunset provision is one of the only methods to have a statistically and economically significant effect in reducing levels of regulation.

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The third barrier: no private income disclosure required from elected officials.

We have pointed outmany times before that South Carolina is the only state in the nation that requires no disclosure of private income sources for elected officials. This has an effect on regulation. Why? Because lawmakers have an incentive to provide special statutory privileges to their (or their families’) businesses by crafting either regulatory exemptions or new regulations that their competition will find difficult to bear. Although this conduct is both unethical and illegal, in the absence of private income disclosure it’s difficult to determine possible conflicts of interest and definitively say whether and by whom it’s being carried out. Citizens have every reason to be suspicious, however, as even the little information we have about legislators’ private income has provided us with numerous examples (like this one) of just this sort of cronyism.

Again the needed reform here is elegantly straightforward. All elected officials in South Carolina should have to publicly disclose both their own and their immediate family’s private as well as public income sources. Such disclosure would allow citizens, the news media, and watchdog groups to more easily police and identify potential unethical behavior by elected officials. The effect would be a reduction in self-serving regulation as well as other unethical measures: legislators would be far more reluctant to push such measures knowing their motives could be easily exposed.

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None of the reforms discussed here contradict the letter or the intent of the constitution, and indeed one directly supports the separation of powers spelled out in that document. The constitution specifically gives the legislative body and not the executive branch the power to create law, and a reform requiring legislative votes on all proposed regulations would help to restore the governmental balance envisioned by the founders.

The practical benefits can hardly be overstated. A generally low level of regulation would benefit all citizens in South Carolina in their capacities as both consumers and producers. Keeping the level of regulation low allows individuals and businesses to more easily innovate in serving the wants of consumers. And it reduces costs to businesses, allowing them to invest more and thereby increase the size or improve the efficiency of the production of desired goods and services.

The costs of high levels of regulation, by contrast, push marginal businesses out of the market and thereby reduces supply of goods and services which drives up prices harming consumers. Finally reducing the level of regulation will cut wasteful business expenditures on rent seeking – that is, money spent by firms, not to better serve consumers, but to lobby government for special privileges unearned in the market.

If there is an effective argument why these barriers shouldn’t be quickly removed, we’re not aware of it.

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