B School for Public Policy
Achieving Regulatory Excellence
Much attention has been given to Donald Trump’s call for deregulation, a priority based on the notion that regulation impedes business growth. According to data from the Penn Wharton B-School for Public Policy seminar “Achieving Regulatory Excellence” by Professor Cary Coglianese, the number of cumulative pages in the code of Federal regulations has more than doubled from 75,000 to over 180,000 between 1975 and 2016. But regulatory excellence is more complicated than the raw number of regulations and needs to incorporate not only concern for the success of businesses, but also, and perhaps more importantly, the protection of citizens. Cary Coglianese, the Edward B. Shils Professor of Law and Political Science and Director of the Penn Program on Regulation has researched and written extensively on “Achieving Regulatory Excellence”. He joins Dan Loney, host of Knowledge@Wharton Radio to discuss the topic.
Knowledge@Wharton: Take us into the presentation that you gave on Capitol Hill and what was really the goal of bringing this idea forward?
Coglianese: Well, one thing that I wanted to do when I went to Capitol Hill as part of the Penn Wharton Public Policy Initiative series, was simply to give staffers a better idea of what’s happening with regulation and how it all works. The world of regulation is one of these realms of policy making that’s absolutely critical, but largely is misunderstood and hidden from public view. High school students in their civics classes learn about how a bill becomes a law. But they don’t learn about what happens at all the hundreds of different federal regulatory agencies and how they operate. Part of my purpose was to give some insight into how this relatively obscure process works, even for people who are staffers on the Hill.
Knowledge@Wharton: Which is something that a lot of people would step back and say, “Well, wait a minute. Hold it. These are the people that are writing these laws, involved in these regulations and they really don’t understand what’s going on behind it.
Coglianese: That’s right. And you know, actually that’s one of the reasons why the number of pages in the code of federal regulations has increased over the years. It’s because Congress passes laws that call for agencies to develop regulations. Back in December Trump had a press conference in which he contrasted a huge pile of papers that was taller than himself that was supposed to represent the number of pages in the code of federal regulations today. And then, about six feet away on the ground was another, smaller, pile of regulations—or papers—that represented regulations and the level of them in 1960. And there was this red ribbon between them from the low level of 1960 to this massive pile from today. Great visuals! And he cuts this red ribbon between them and says, “We’re going to get back to the level we had in 1960. Well, you can’t—because, one of the reasons that we have so many more pages in the Code of Federal Regulations is because Congress has passed an enormous number of laws since 1960.
Knowledge@Wharton: But the expectation is that you would have a level of increase in terms of the regulations anyway because as businesses develop, new technologies come on board, you’re going to have these new regulations that are going to be put in place.
Coglianese: That’s right. And that was one of the things I emphasized on Capitol Hill, is that if you look at the rate of growth in regulations and then compare that to the rate of growth in the economy, the economy’s grown much more than the rate of regulations. If you look at other indicators of the more complex economy that we have, for example, say, the number of patent applications. The number of patents that have been issued has sky rocketed over the years. The number of airline passengers. All of these indicators of the complexity of our economy have increased dramatically. And so, it’s not surprising that regulations have also increased somewhat, too—not at anything close to the rate of these other indicators.
Knowledge@Wharton: So, playing off of the title of your book, what do you believe is regulatory excellence in this day and age?
Coglianese: Well, listen, you know, one of the motivations behind the book was to begin to transfer into the world of regulation a lot of thinking that has really passed through the private sector over the last several decades—about quality manufacturing, for example. We understand and have thought about quality in the private sector. Remarkably, little attention to quality or excellence in the regulatory realm. Now, some people, I grant you, will say, “Regulatory excellence? That must be an oxymoron.” But I think what we wanted to do was take that notion seriously. And yes, try to define it a bit. It is hard to define, in part, because what counts as excellent regulation will vary from to realm to realm. Regulation is a way of solving problems. And so, to define excellence, you have to, first of all, be thinking about concrete problems that are trying to be solved. When the environmental protection agency—during the Reagan administration—took a look at what was happening from the pollution from cars that were burning lead fuel, the Reagan administration moved forward and said, “We’ve got to eliminate lead from gasoline,” and they did so in a time when otherwise an administration was committed to what most people thought of as de-regulation.
Knowledge@Wharton: So, you’re talking about—in certain cases—instances where there may be common good, public good, that comes into play. But you’re also talking about a time and this was the case probably to a degree in Reagan’s administration, obviously still here today—that you have companies, and the influence that they have on Capitol Hill—obviously have a concern of making the changes. There probably was when you were talking back in the ’70s and the ’80s with the EPA with looking at lead in gasoline as well.
Coglianese: Sure. There’s always a trade-off here, that you have to think about with regulation. We have to consider what the public benefits are, but also, what the private costs are. And you want to make sure that overall, regulation is moving in a direction in which we’re getting benefits that justify—maybe even outweigh—those costs. Everybody recognizes that there’s some need for regulation. There are failures in the marketplace. There is what economists call externalities—spill overs—like pollution, like the lead in the pollution from automobiles burning leaded gasoline. There’s also information asymmetries, where consumers just don’t have as much information about the product. So we justify food and drug regulation, for example, on these grounds. And then, of course, there’s real concern about monopoly power—concentration of market power is another justification for regulation.
Knowledge@Wharton: We’re talking about the presentation Professor Coglianese gave recently on Capitol Hill to staffers about regulation and regulatory excellence. In this report, you also focus on the Bush and Obama administrations and look at regulation in both of those times in the White House, correct?
Coglianese: That’s right. I mean, sometimes people wonder, “What are we getting for all the regulation that we’ve seen?” And if you look at the estimates that have come out of White House both in Republican administrations and in Democratic administrations, we can see that there’s certainly a lot of costs associated to regulation. But there’s also a demonstrated, high level of benefits as well. In the United States, we have this process that has been in place since the Reagan administration to have new regulations reviewed by economists at the agencies and at the White House. And the evidence is really quite compelling that these significant regulations are delivering a positive net benefit to society.
Knowledge@Wharton: But, where are we in terms of the growth—the amount of regulations? Even in the short term? I mean, President Trump has obviously talked about the need to cut regulations. He talked about, you know, getting rid of two regulations for every one that he wanted to bring forward. Where are we in terms of the scope of the growth of regulations? Especially when we have so much new kind of industry in our society today?
Coglianese: Well, I think a lot of the new innovations are probably the least regulated. If you think about self-driving cars. Well, there’s some industry guidance on it. But it’s not been very carefully or stringently regulated or overly regulated by the federal government. You think about—well—
Knowledge@Wharton: Social media.
Coglianese: Social media, Facebook—I mean, we’re just at the early stages of thinking about what regulation might mean in that context. Machine learning, artificial intelligence, precision medicine. There’s a lot of technological advances— a lot of which are incredibly promising and we certainly don’t want regulation to impede innovation that’s positive for society. But we do need regulators to kind of up their game. And I think one of the messages I also gave to folks on Capitol Hill, is that if we want to have the positive benefits of any increasingly optimizing, smart economy, that’s based upon a lot of new innovations, but we also want to avoid the real problems that these innovations are likely to have associated with them, then what we need to do is up the game in Washington and increase the capacity—the human capacity—the resources that our regulators have—not necessarily to do more regulation, but do to smarter regulation.
Knowledge@Wharton: Well, and it also talks about the fact that they need to have it in their mindset that you need to address this. And that would probably be a question of whether or not it’s actually been the case, you know, for many decades now.
Coglianese: That’s right. We need good information in order to make sound, smart regulatory decisions. And if we really just sort of turn our backs on this and don’t study what’s happening with new innovations, then we may over look and have some real public harms develop.
Knowledge@Wharton: You have an interesting graph in the presentation that you did—that looks at the growth of regulation in terms of real GDP, but also in terms of the growth—you mentioned patent applications earlier which obviously in the last few years have been sky rocketing with all the new technology that we have here. But you’re talking about growth pretty much on all fronts here. It’s just at varying levels.
Coglianese: That’s right. And the lowest level of growth has been in the pages of regulation. So, you know, we should not overstate the degree to which regulation is smothering the economy or holding back innovation. It’s true that we have more regulations today than we did in 1960—that is indisputable. But we also have a lot of new technologies and, quite frankly, new problems that we weren’t even aware of. In 1960, people weren’t really focused on the dangers of tobacco smoke, environmental contamination. Civil Rights was just emerging. Consumer protection and the like—those were all nascent areas. And today, we have, you know, our own nascent areas that we need to be thinking about and watching—not to clamp down unduly, but to be able to make smart regulatory decisions when needed.
Knowledge@Wharton: You look at this in your work that you did through kind of three main areas. You talk about the procedure part—which is a little bit of the politics behind it, the management, and then you also talk about the technology side as well.
Coglianese: Yes, that’s right. Historically, the way we’ve thought about getting smart regulation—about achieving regulatory excellence in the United States, has largely been procedural—in that we’ve tried to create an administrative procedure act and procedures for White House review of new regulations. We’ve proceduralized [sic] what we hope will generate good regulation. And to some extent, those are really valuable. I mean, we’re probably ahead of the world in terms of our transparency in the regulatory process. But that’s not enough. And I would say we also need good management. And we’ve done, over the last couple of years, in this regulatory excellence project, a tremendous amount of focus on what counts as good management practices in the regulatory process? And I’m happy to talk about that. And the third area, though, and I think this is the one where it follows on what we’re just talking about: technological innovations that regulators themselves should be thinking about using. There’s advances in new sensing technology. There’s new developments in machine learning that can help regulators forecast problems more precisely. And it’s on this last realm that I think we’ve given the least amount of attention to. Although I, along with a co-author, former Penn student actually, have written an article recently called Regulating by Robot in which we explore the possibility that regulators might do better addressing some problems if they can use the tools of artificial intelligence to support their decision making.
Knowledge@Wharton: Take out some of the personal, emotional contact that could come into play.
Coglianese: Yeah. Emotional, you know, other forms of bias and quite frankly, a lot—we know a lot about the cognitive errors that people are making. And if we can design computerized tools to make better forecasts, we could really do a much better job. In fact, some research that we’ve been sponsoring here at the Penn program on regulation, has looked at how OSHA could improve its targeting of unsafe work places through a machine learning analysis. And we’ve shown that they could target about 30% better than they’re currently doing. They can’t get to every workplace to inspect. So you want to pick and choose appropriately and this is just one of many examples of where regulators might benefit from some of the new technologies.
Knowledge@Wharton: How much do you think of a factor is the constant updating process? Many of the regulations have been in play for decades—some are more new. You can’t just put a regulation into play and leave it sit for 30 or 40 years because of how technology ends up developing and the impacts end up changing in the end.
Coglianese: Well that’s right. And a lot of people will look at how many regulations are coming out of Washington and not realize that a good number of those regulations are in the category that I call kind of housekeeping or maintenance. So here’s a surprising statistic that—in light of all that the Trump administration has said about its regulatory roll back. If you look in the Federal Register—which the daily publication where all new regulations appear—for the first year of the Trump administration, 3,222 new final rules were published in the Federal Register. And that’s really about the same level as we would find in the Obama administration. Now, are all these 3,000 rules highly consequential? You know? Are they path breaking? No. A lot of them are just what regulatory agencies need to do day in and day out to maintain that stock of regulations and make sure that it’s working well.
Knowledge@Wharton: I wanted to take you back to the management piece. Because you wanted to dive into this. How important is that part in the entire process?
Coglianese: Well, I think it’s central. At the end of the day, what I think is that regulatory excellence is really about people excellence. You know, we think about regulation as this technocratic, maybe obscure thing. I think when people hear the word ‘regulation,’ probably their eyes glaze over and it just sounds pretty boring and dull. But really, fundamentally, regulation is about people—the regulators—trying to shape the behavior of other people—in the regulated industry. Why? To serve still yet other people: consumers, the broader public, for example. And you can’t really have excellent regulation if you overlook the people and the management of regulatory organizations. And so one of the things we’ve developed is a framework for regulatory organizations and their leaders to use to try to assess how well they’re doing on three critical attributes of regulatory excellence that we identified from an extensive amount of research that we did. And those three really fall into the categories of integrity—so a regulator not only needs to lack corruption, but really be even handed and willing to play fair. A regulator needs to be competent. It needs to be able to put in place rules that are sensible.
Knowledge@Wharton: Which is why they have staffers to tell them about these things, right?
Coglianese: Exactly. And then, the third is, they need to be empathic. They need to engage with the public and listen attentively. It doesn’t mean that they have to do everything that they’re told by the public or by industry. We certainly wouldn’t want that. But they do have to listen attentively with an aim of learning how to do better—how to create smarter regulation.
Knowledge@Wharton: So, off of those three ideas right there that you lay out, do you think that that’s actually occurring? In this day and age?
Coglianese: I think it’s something that you do find happening in some agencies some of the time. But, it ebbs and it flows. I mean, there’s very serious questions right now about, for example, the integrity of the top leadership at the US Environmental Protection Agency—with all sorts of allegations and investigations that are taking place right now—by Congress, Inspector Generals and so forth. And you know, however hard somebody’s trying to work at improving at a competency level, if you don’t have integrity and if you’re perceived as illegitimate, it’s going to make it very hard to get your job done. And I think it is making it hard for Pruitt at EPA to get his job done. And it may well drag down the administration some and be a contentious issue in the next election, even. And if Republicans lose in the Congress, House, maybe the Senate too, in the fall, that’s going to make it much harder for this administration to achieve its objectives on the regulatory front because these administrators are going to be hauled in front of Congress for hearings and it’s going to slow things down.
Knowledge@Wharton: And I think that’s part of the process that a lot of people that, you know, citizens of the US don’t follow on a day to day basis—is that process. And the process in general, I think, and you can correct me if I’m wrong in this, feels like it’s—you have to be diligent in the process. You have to have a certain level of pace, of control—when you’re going through this process. But I think there are also times where people have an expectation that the process could be more effective, more efficient and at times it is or it isn’t.
Coglianese: Well, yeah, you know, it’s interesting. The process is not quick, too. And for many years, folks on the Left criticized the process as being too ossified and slowing things down. Of course, now I think the folks on the Left are happy that the process is ossified. And so, you know, yeah, when Trump claims to have really rolled back regulations, he hasn’t yet. I mean, there’s many of the so called regulatory roll backs that this administration has undertaken, have only started the process of rolling back these regulations. They haven’t finalized it, yet. So, it does take some time.
Knowledge@Wharton: Should there be an expectation that he could, potentially, have this level of roll back that he wants to have in this country? Because of all of the needs that we have for certain regulations? I mean, maybe in certain areas, you can look at regulations and tweak something and make it more efficient. But the expectation of just being able to pull back regulations—at times, you wonder whether or not that’s a possibility even at the basic level.
Coglianese: Well, first of all, it’s not a possibility whenever the underlying statutes that Congress has passed have called for and even required regulations. And many of the statutes actually call for—the Volker Rule, for example didn’t just get dreamed up by folks in the Treasury Department. Congress said in the Dodd Frank Act, “You shall create this rule.” And it gave a deadline, even. So, this is a real barrier, certainly, to any kind of regulatory roll back. But then the other thing is, even when agencies do have some discretion and they can change their minds from administration to administration, they have to go through a process of proposing a rule, taking public comment, justifying the final rule and making sure it will meet the satisfaction of the courts. And in this regard, some of the early efforts by the Trump administration have met with remands and repeals from the courts who have said, “You haven’t really done your homework yet. You have to do your homework to roll back rules.”
Knowledge@Wharton: What was your reaction that you got from some of the staffers? To this presentation?
Coglianese: Well, I think that many of them, actually, appreciated the fact that I was able to first, explain the process to them and that I also, like we are at the Penn program on regulation, at the University of Pennsylvania, we’re neutral players. And I think that’s refreshing, quite frankly, in Washington. So there were folks, you know, I’m sure, who were working for one side of the aisle or the other, who had very different views about what the direction should be for regulation in the United States. But I think they appreciated the broader perspective and awareness of how this process works.
Knowledge@Wharton: So, playing off of the last comment, what do you think is the future on regulation here in the US? And, I guess, to a degree, we touched on it before, is that, with all these new technologies coming forward, that there is going to be a different or increased level of regulation that we will see with artificial intelligence, with autonomous vehicles, with—you know, we may see social media obviously in the near term.
Coglianese: Sure. Well, for each of those problems, what form regulation takes will need to be different. It’s got to be customized to fit the problems that are at hand and the technologies and the innovation. I think one thing that we’re seeing, increasingly, is a recognition that regulation needs to be more flexible. And that it needs to try to leverage the private sectors awareness of problems and try to pursue what I’ve called management based regulation where the regulators are not issuing edicts on high about exactly what to do or how to run a business, but rather, are telling firms—and this is happening in a variety of areas—the private sector managers, go and analyze the hazards created by operations and develop plans for addressing those problems. So, there are requirements. The requirement is to develop a management plan or a management system that deals with the problem. And for new problems, for problems that are highly variable or changing rapidly, because technology’s changing, that’s a sensible approach. And in fact, that is essentially how the Federal Department of Transportation has so far approached autonomous vehicles. They haven’t issued this so much in firm regulations, but they have a guidance that calls for this kind of management planning by the auto makers.
Knowledge@Wharton: Which, again, kind of goes back to something we talked about before, is the fact that in the case of autonomous vehicles, there is a want, but there’s also a need to make sure that the public is secure in terms of the technology and how it is used on the roads of the United States so that we don’t have unbelievable pain and angst against the consumers of this country.
Coglianese: Automobile safety is a huge problem for our society. We have made some real strides over the recent decades, so, you know, we used to have about 50,000 people die every year in automobile accidents. That’s about the number of casualties we had in the Vietnam War. Think about that. Every single year, in automobiles. Now, we’ve been able to drive that down to maybe 36,000 a year. That’s still an awful lot of fatalities. And if autonomous vehicles can help us drive that down even lower, that’s great. But there’s going to be a lot of transaction and transition costs along the way. And the public’s got to accept the technology.
Knowledge@Wharton: Cary, great seeing you again.
Coglianese: Really nice to be here.
Knowledge@Wharton: Thanks for coming. Thank you.
Coglianese: Great talking to you.