U.S. manufacturers are being significantly impacted by the escalating volume of federal regulations, according to a new report from Nera Economic Consulting on behalf of the Manufacturers Alliance for Productivity and Innovation.
The average number of major federal regulations promulgated under President Obama in the past three years, 72, is twice as many as the 36-per-year average promulgated during the Clinton presidency. Under George W. Bush, the average was 45.
The cost of complying with those new regulations — and all other major federal regulations — will reduce the gross domestic product by anywhere from $240 billion to $630 billion in 2012, and also decrease both the value of manufacturing shipments and exports this year, according to the study.
Specifically, manufacturing exports could be anywhere from 6.5 percent to 17 percent lower than without those regulations, and the total value of shipments could be $200 billion to $500 billion lower, in constant 2010 dollars, because of major federal regulations.
If the value of manufacturing shipments ends up $500 billion lower in 2012, that would be equivalent to 85 percent of the 2010 pretax profit of the entire manufacturing sector, according to the analysis by Washington-based Nera — National Economic Research Associates Inc.
What's more, that regulatory cost burden on manufacturing is possibly twice as high, warned the report, released Aug. 21
“Because 95 percent of [federal] regulations are non-major and therefore not accounted for in this study, the aggregate burden of these unaccounted regulations could well be as large as the cost of the major regulations,” the report said.
“Our concern is about the number of federal regulations on the books, the rate at which the number of new regulations is growing, and the impact of regulation on business — particularly manufacturing,” said MAPI President and CEO Stephen Gold. “We understand the important role regulation can play in promoting health and safety and to protect the environment, but there also needs to be a more rational approach to our regulatory system.”
The report underscored that point.
“If helping the manufacturing sector escape its flat-growth trap is an important priority of national economic policy, it is imperative that the pace of new regulations be controlled and the cumulative burden of existing regulations be reduced [because it] contributes significantly to long-term slowing of growth of the manufacturing sector,” the report said.
“If policymakers want American manufacturers to be more competitive and to invest more in this country, they need to ensure that federal regulations are better coordinated and streamlined to minimize costs,” he said. “Our goal is not to argue for the elimination of regulation, but to describe and quantify the substantial cost of federal regulation to manufacturers, and to provide a framework for a rational evaluation process so American manufacturing competitiveness is not hampered.”
The U.S. Chamber of Commerce has emphasized many of those same points the past two years, with the chamber's president and CEO, Thomas Donohue, earlier this year calling the “regulatory avalanche” of new federal rules “unprecedented.”
“The Labor Department has 100 rulemakings in the pipeline,” Donohue said. “Dodd-Frank has 259 mandated rulemakings, 188 suggested rulemakings and requires 63 reports and 59 studies. The health-care law established 159 new agencies, panels, commissions and regulatory bodies. EPA has some 200 regulations in the works.
“We cannot allow this nation to move from a government of the people to a government of the regulators,” Donohue said. “And that is where it has been headed under the Republican Party and the [Democratic] Party alike.”
The MAPI report also pointed out that the cost of compliance with just major federal regulations is growing significantly faster than manufacturing output and the GDP.
According to its analysis, the cumulative inflation-adjusted cost of compliance with major manufacturing-related regulations has grown at an annualized rate of 7.6 since 1998. That corresponds with an average annual growth of just 0.4 percent in the physical volume of manufacturing sector output and average inflation-adjusted GDP growth of just 2.2 percent in the same time frame, it said.
Plastics and chemical companies — as well as wood, paper, printing and petroleum companies —are directly subject to 65 major regulations and 755 non-major regulations, according to the report.
The report also said there are 185 major regulations and 1,423 non-major regulations that are directly related to the machinery and transportation equipment sector, and that there have been 2,183 unique regulations promulgated that affect manufacturing just since 1981 when the Office of Management and Budget began compiling data of the cost of government regulations.
The MAPI report said the major federal regulations alone could reduce manufacturing output over the next decade anywhere from 2.3 percent to 6 percent, and reduce output from the plastics, chemicals and petroleum sector 2.5 percent to 6.5 percent in the same time frame.
The Environmental Protection Agency imposes the largest regulatory burden on manufacturers, with 972 regulations in total, including 122 major regulations, said the report. The cumulative estimated cost from 1993 through 2011 was $158 billion in constant 2010 dollars.
The next three federal agencies that impose the highest number of regulations, said the report, are the Department of Transportation, with 880 regulations in total, including 69 major regulations; the Department of Labor, with 214 regulations in total, including 27 major regulations; and the Department of Energy, with 106 regulations in total, including 17 major regulations.