September 1, 2013

Regulation According to Sunstein

Why and how business must step up its game

The sprawling White House regulatory apparatus gives President Barack Obama a detour around legislative gridlock in Congress as he seeks a second-term legacy. From environmental and workplace rules to banking and consumer regulations, the executive branch can affect a vast swath of the economy, virtually independent of lawmakers.

But even reporters and commentators who provide 24/7 coverage of congressional and White House politics hardly look at how the White House exercises its considerable power to enact federal regulations.

Drafting is well underway for rules to implement two first-term Obama initiatives: the Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The White House is also reported to be developing initiatives to control greenhouse gases by slapping tough restrictions on emissions by electric power plants. Aside from these headline items, less prominent rulemaking aims, for example, to decrease worker exposure to silica (sand) dust; set new safety standards for table saws; limit employers’ use of legal advice in labor disputes; and reduce the time allowed companies to move imported raw materials on inland waterways.

It seems pretty clear that, for savvy business political activists, influencing the Obama regulatory agenda is a more urgent and useful chore than lobbying a predictably deadlocked and intensely partisan Congress. Perhaps just as important for those working to lighten or toughen business regulation would be to focus on the administration’s work to reform the regulatory process through 2014. Obama has said that this regulatory reform is meant to be a major chapter in the legacy he passes to the next president.

Last year, as he campaigned for re-election, Obama ordered his agencies “to promote public participation in retrospective review [of regulations], to modernize our regulatory system and to institutionalize regular assessment of significant regulations.”


An Important Look at How to Handle the Giant


As much as anyone, Cass Sunstein, 58, the prolific and controversial academic specialist in administrative law, has been at the center of this regulatory reform since he became White House regulatory czar in 2009. His official title was administrator of the little-known White House Office of Information and Regulatory Affairs (OIRA). Sunstein stepped down from his self-styled “dream job” more than a year ago. Howard Shelanski, a government economist, lawyer and antitrust expert, replaced Sunstein in June following Senate confirmation.

Meanwhile, Sunstein has used at least part of his return to Harvard Law School to write about his tenure and the future of regulation in his book Simpler: The Future of Government (Simon & Schuster) and a Harvard Law Review article. A close look at this book complemented by a brief interview with Sunstein offers business activists considerable insight into how and how not to deal with the lumbering federal regulatory process.

The comings and goings of midlevel White House bureaucrats usually have a brief shelf life in the attention span of pundits and lobbyists. But most of them are not, as Sunstein’s publisher boasted, “the most-cited law professor in the United States.” Nor are they guests on “The Colbert Report.” Nor are they close friends with the sitting president.

In Simpler, Sunstein touts his relationship with Obama, plugs his expertise as a regulation critic and asserts the power of the office where he served. In the years before his appointment, “I was heavily involved in the legal work that established what has turned out to be OIRA’s enduring role. I was even able to participate in drafting of the all-important cost-benefit provision,” he writes. As OIRA administrator, “I promoted simplification, including the use of plain language, reductions in red tape, readable summaries of complex rules and the elimination of costly, unjustified requirements.”


Claims of a Transformation

Sunstein writes of a “large-scale transformation in American government that took place while I was OIRA administrator” and calls OIRA “the cockpit of the regulatory state.” He claims to have insisted, like baseball manager Billy Beane in the best-selling book and hit movie Moneyball, that regulatory decisions be justified by data, not sentiment or politics, even if it means “depositing some highly touted rules, beloved by regulators, onto the shit list.”

Sunstein estimates that, in the first term of the Obama administration, $159

billion in net benefits over costs were achieved through regulatory restraint

and attention to red-tape cost burdens. But he acknowledges that antagonists

in the regulatory process may not trust the other side’s cost-benefit estimates.

Indeed, the pace of significant White House regulatory activity (rules estimated to have $100 million or more in annual economic impact) eased noticeably between 2010 and 2011, but that was after an increase between 2009 and 2010, according to prominent government regulation hawk Clyde Wayne Crews Jr., vice president for policy at the Competitive Enterprise Institute in Washington, D.C.

The National Association of Manufacturers (NAM) applauded OIRA’s role during Sunstein’s term and called on Congress to boost its staffing, currently at about 50 employees. “A modest investment in this institution will pay back significant returns to the entire economy,” NAM President Jay Timmons said in a letter to Congress last year.

On the other hand, several liberal pundits cheered Sunstein’s departure. They denounced his cost-benefit focus, OIRA’s unexplained rulemaking delays and the agency’s alleged power grabs, especially regarding environmental regulations. A headline on the liberal website ThinkProgress.org read, “Sunstein’s ‘Simpler Government’ Is Legally Suspect, Overly Secretive and Politically Unaccountable.”

“In the final analysis, Sunstein has continued the [George W.] Bush administration’s tradition of using the office to block needed health and safety protections disliked by big business and political contributors,” Rena Steinzor, president of the Center for Progressive Reform in Washington, D.C., wrote on the center’s blog.

Asked by Forward in a brief email exchange if any business lobbyist ever congratulated him directly for reining in any regulation, Sunstein said, “I don’t remember anything like that.”

Still, he left behind smartly articulated theories about restraint and transparency that businesspeople facing the federal leviathan can exploit in future conversations with regulators. Now they have a trove of books, speeches, articles, testimony, memoranda and blog posts by Obama’s friend and regulation guru, most of which seem business friendly, and all of which invite a useful leading question: What would Cass do?


Lessons from Sunstein

1. “Nothing should be hidden.” But pledges of government in the sunlight are hardly new. President Bill Clinton in 1993 began the push for more disclosure and oversight of the regulatory process. In 2002, under President George W. Bush, a searchable website called Regulations.gov began to post the dockets of regulatory proceedings. Another searchable site, Reginfo.gov, tracks OIRA’s work.

Sunstein contends that sunlight on the regulatory process not only provides disinfectant against corrupt or wrongheaded government power but also produces better results, even when no malfeasance or misfeasance is at risk. “While in government, I was acutely aware of how much I did not know,” he writes in Simpler. “When judging the potential effects of rules … public officials cannot possibly have complete knowledge.” 


To that end, Sunstein asserts that OIRA has an open-door policy for representatives of private interests to discuss proposed rules. But business lobbyists, take note. He also writes in the Harvard Law Review article, a more detailed companion to Simpler, “I cannot recall a single case in which a meeting offered entirely novel information.”

That’s because OIRA’s formal encounters with people outside of government regarding a proposed federal rule typically occur only after OIRA has assembled reports on the proposal from relevant federal agencies, which in turn are supposed to solicit and publish public comments.

Sunstein claims that OIRA can impose an important reality check against the silo thinking of career regulators in subject-specific agencies as well as special interests in the private sector. But, he says, it doesn’t help when nongovernment presenters at OIRA meetings speak in “vague and general terms” or attempt “to refer to opinion polls or to suggest that the administration will in some vague sense be helped or hurt by proceeding with a rule.” In Harvard Law Review, he writes, “Sometimes presenters offer the equivalent of enthusiastic support or extreme skepticism, not so different from loud applause or sustained hissing. Because support and skepticism are rarely informative, and almost never surprising, such meetings do not have any impact on actual decisions.”

2. “We need more and better cost-benefit analysis.” President Ronald Reagan ardently championed economic cost-benefit analysis by the White House as a tether on myopic federal rule-makers. To that end, he single-handedly boosted OIRA’s power. No president since has reversed the policy.

In Simpler, Sunstein offers his version: “Wherever the law allowed, we insisted on careful consideration of benefits and costs. We focused on economic growth and job creation, and we sought to ensure that regulation did not compromise either of those goals. We recognized (and this is a critical point, sometimes often overlooked by progressive groups) that when high costs are imposed on the private sector, it is not only some abstraction called ‘business’ that pays the bill. Consumers may pay too, in the form of higher prices. … Workers may be harmed as well, through lower wages and hours.”

The devil, of course, is in the numbers. Sunstein estimates that, in the first term of the Obama administration, $159 billion in net benefits over costs were achieved through regulatory restraint and attention to red-tape cost burdens. But he acknowledges that antagonists in the regulatory process may not trust the other side’s cost-benefit estimates. In Simpler, however, he defends the process: “Agencies make a lot of mistakes [in estimating the economic costs and benefits of proposed rules], but there does not seem to be systematic bias in one or another direction.”

3. “If we were asked to make choices about everything that affects us, we would immediately run out of time.” This benign comment underlies Sunstein’s fascination with government rules—not the process of making rules, but the substance of rules. He calls himself a “libertarian paternalist,” which he defines as someone who seeks to accomplish public good while preserving individual choice through “nudges,” rather than mandates.

Obama’s order to boost vehicle fuel economy was a mandate, Sunstein notes. But the rule requiring clearer miles-per-gallon information to be posted on vehicles for sale was a nudge. The intent is to increase awareness of fuel economy and make comparison shopping easier without limiting a customer’s choice of products.

Much of Simpler dwells on such ideas, which Sunstein calls “choice architecture.” But a nudge to a consumer may be a mandate to a business. The scope of possible government nudges, for example, could extend far beyond conventional concerns with public health and safety. The image of Orwellian, insidious regulatory nudges by the federal government to squelch free choice and amplify government prompted conservative talk show host Glenn Beck to label Sunstein “the most dangerous man in America.”

In Sunstein’s view, nudging plus cost-benefit analysis present a new intellectual framework for business and government to cooperate toward more pragmatic, transparent and efficient ways to achieve mutually agreed-upon social goals.

So far, public awareness of nudging and cost-benefit analysis is sparse. Despite its leadership potential, OIRA remains an opaque federal agency. At his confirmation hearing in June before the Senate Homeland Security and Governmental Affairs Committee, Shelanski promised to speed up OIRA’s reviews and to “institutionalize” the Obama order that regulators continually review their rules to demonstrate that their intentions and costs have been justified. Like Sunstein, he pledged to have an open door to businesses and others affected by regulation and to “listen carefully.”

“Cass has done a fine job, but the OIRA position has many inherent weaknesses,” Christopher DeMuth, who headed the agency in 1981 under Reagan and was president of the American Enterprise Institute from 1986 to 2008, told Forward. “Thirty years of experience has taught us a great deal about how to improve it, and until some improvements are made, the office will have only a mild and occasional effect on the course of regulatory policy.”

In particular, “I would also like to see OIRA be much more assertive in submitting analytical comments to the agencies and requiring that they be included in the formal rulemaking record.” DeMuth said a more detailed record is needed to aid the federal courts in setting standards for cost-benefit analysis by federal regulators.

Indeed, OIRA’s failure to publish a full record of its informal and formal dealings with White House departments and agencies in the rulemaking process bothers critics on the left as well. After Shelanski’s confirmation hearing, the Center for Progressive Reform complained, “He did not explain how he would ensure that these consultations would be conducted transparently.”

Business lobbyists may have a receptive ear in the Obama administration’s Office of Information and Regulatory Affairs. “They are very smart and professional,” DeMuth said. But unless business openly engages OIRA, even at the risk of offending the more hands-on regulators at the Environmental Protection Agency and elsewhere, Sunstein’s lessons will gather dust.

Bill Barnhart, a Chicago-based financial writer, was a business editor and columnist for the Chicago Tribune for 30 years. He is the author of MSCI’s 100th anniversary history, “Links in the Long Chain.”