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Thu December 9, 2010
Realities of regulatory red tape
Don’t misunderstand. Businesses in Michigan often complain about the red tape. There are plenty of stories about Michigan government bogging down any attempts by business to expand in the state or to build new plants here. But, it’s hard to determine whether those complaints are business people just griping about any kind of restrictions placed on them… or a real problem within the state’s bureaucracy.
So, let’s look at some of the ways you measure that.
First… Forbes magazine. One of the leading business magazines in the nation, Forbes is famous for publishing all kinds of rankings. One of them is an annual list of “Best States for Business.” Among the categories is “regulatory environment.” In that category, Michigan has ranked very well in the past. In 2006, Michigan was second best in the nation. In 2007, third. In 2008, fourth. And in 2009, it dropped to 14th… but part of that drop was due to a change in how “regulatory environment” was defined for the rankings.
Kurt Badenhausen puts together the “Best States for Business” rankings for Forbes. He says… the way he calculates “regulatory environment” is more than just how burdensome regulations are on business.
“The regulatory climate looks at a few things beyond just the regulatory environment. We look at things that government has a direct impact on which is a little more all-encompassing. “
They throw in things such as transportation infrastructure, what kind of incentives each state government offers, how easy it is to file lawsuits against businesses, Moody’s bond rating of the state, a government integrity index… AND… then the regulatory burden.
Badenhausen told me the regulatory component came from a study by the Pacific Research Institute. That group’s most recent report came out in 2008. It’s called the U.S. Economic Freedom Index. But… even that report doesn’t really get to the issue of red tape. It views all regulation, whether it’s requiring you don’t starve animals on the farm, you don’t abuse the elderly in a nursing home… or you don’t spew toxic materials into the water… as an infringement on economic freedom. To quote the study, “This report is not concerned with the purpose of regulations, but with the reality that they affect the free allocation of private resources, thus reducing economic freedom.” So, according to that viewpoint… any regulation –no matter how good it is for society-- is bad for business.
Under the regulatory category of the U.S. Economic Freedom Index, Michigan ranks 32nd in the nation. The report itself does not go into specifics of why Michigan is ranked that low… but the fact that it has stricter regulations on water pollution --being the Great Lakes state-- and has other protections of public health and safety that some states don’t offer their citizens likely contribute to that ranking.
“This is very difficult to measure with any degree of confidence," says Barry Rabe.
He is a professor of public policy and of the environment at the University of Michigan.
“You mentioned efforts to rank the states by regulatory burden and I’m familiar with these, I’ve done-- made some attempts at this myself. It is very difficult when you think of a term like regulation to, measure all the ways that a state government --whether it’s Michigan, Florida, California-- intervenes in marketplace or private decisions,” Rabe explains.
What the U.S. Economic Freedom Index does NOT include is any trouble wading through red tape… which seems to be the biggest complaint among pro-business groups in Michigan.
So, we’re back where we started, just anecdotal evidence. The stories and complaints from businesses and pro-business groups. Stories of companies waiting six months, nine months, a year or longer to get permits from the state.
Doug Roberts, Junior is with the Michigan Chamber of Commerce. He says businesses are fed up with the bureaucrats in state government treating them like they’re suspects and requiring seemingly endless amounts of applications and explanations. They want to be treated better.
“They want improved customer service. They want, when they call to the state government, that state government will help them to understand, you know, these are the permits that you need and this is what you have to do to get this done as opposed to what they feel today is that there’s often an adversarial relationship with state government and that the government is kind of out to get them or out to find problems with what they have going on. Hey, we’re all in this together, we’re trying to create jobs; we’re trying to improve our state. And how do we get it so we can get these permits approved, we can get things done so that we can get jobs created here in Michigan.”
And the Michigan Chamber of Commerce backed Rick Snyder in the belief that he’ll deal with the regulatory burden the Chamber’s members believe is worse here than in other competing states.
During the campaign, Snyder was saying what they wanted to hear.
"Quite often people in Lansing have an attitude people are bad and should be controlled. So, they’re going beyond the regulations. Instead of saying ‘What’s the efficient way to run a government, let’s put an undue burden on people.’ So, my goal is to switch that system from penalizing people to saying ‘How do you treat people as if they’re good, honest people, and then how do you help them win compliance?’ And then, the exceptions, the bad people, you really go after those people.”
Snyder has suggested a streamlined process of giving companies with good records speedy permits.
That worries some of the people who advocate for protections for the people and the environment. Lisa Wozniak is with the Michigan League of Conservation Voters. She says there’s not a lot of evidence that regulations are so burdensome it’s making Michigan less competitive.
“I actually think it’s a myth. I think that the more you say something the more people believe it. And in this case Michigan has a-- an exemplary record on fine, strong environmental laws. I think if you look at the record of our regulatory system in depth, you’ll find that actually our state ranks fairly high in relation to other states and their regulatory rules and enforcement.”
She wonders if faster permits would make it easier for developers to build on wetlands, for timber companies to over-harvest trees. Would factories pollute water and air if the permitting process is streamlined to the point that regulators don’t have the time or the resources to check the applications thoroughly?
Her colleague at the Michigan Environmental Council, James Clift also is skeptical. He wonders whether the Michigan regulatory process is really costing the state business and jobs.
“If you look at other states which you could probably argue are more regulated than Michigan, some of the ones on the East Coast or California, you would probably argue that those have more regulations than Michigan and that’s where the most economic development and vibrance is today in the nation’s economy. So, clearly there isn’t a one-for-one ratio between the amount of regulation, and the amount of economic development you see going on.”
So the job before Governor-elect Snyder is to satisfy business leaders who say they’re being held up by the bureaucrats without sacrificing the public health and environmental protections that the citizens of Michigan and past legislatures have said are necessary.
Tomorrow I'll look at an approach to streamline the regulatory process in other states that has protected people and resources and gotten praise from business.