The Politics of Deregulation
The OSH Act is more statist than participatory: Congress left the implementation of the rights it created to the executive branch rather than workers or unions. This guaranteed that workplace safety and health policy would be subject to intense partisan conflict, that OSHA would become the focal point for renewed opposition by employers, and that changes in working conditions would depend vitally on the changing balance of political forces.
Employers had been on the defensive during the legislative struggle over the law, and they had done a poor job of defending their interests. The passage of the act challenged them again; the threat to their property rights remained real, and the public’s enthusiasm for social regulation was mounting, not waning, in the early 1970s. Although the act created a narrow range of new state powers, used imaginatively and aggressively they could easily raise the costs of production and advantage workers in the ongoing struggle on the shop floor. If workers and environmentalists forged effective alliances, they might succeed in extending the scope of regulation by building on the act.
After 1970, however, employers rose to the occasion and responded to social regulation in new and often compelling ways. The changes were dramatic.1 There were increases in the extent of business lobbying and, more important, significant qualitative changes in how business groups lobbied. Industry created new forms of organization, overhauled its political strategy, and rehabilitated its ideology. The passage of the various health, safety, and environmental statutes in the late 1960s and early 1970s helped stimulate these changes. With OSHA, employers reacted strongly to both the costs of regulation and the assault on managerial prerogatives and criticisms of the agency were doubly fierce.
The OSH Act played an important role in helping employers rethink their understanding of the state and social reform. By bringing government into workplaces in every sector of the economy, the law encouraged firms to discover their common interests in containing and opposing regulation. In committing public policy to the advancement of new, substantive worker rights for all workers, the act also encouraged businesses to rethink their views of the positive state. In response, corporate executives reached a new level of class consciousness about reform and altered their strategies accordingly: they began to raise class issues; they offered their own positive vision of how the state might reform the market in keeping with the needs of a capitalist economy; and they developed new organizations to implement this strategy.
By the mid 1970s, this mobilization had succeeded in forcing organized labor onto the defensive. As a result, employers, not workers and unions, played a far more important role in the politics of occupational safety and health regulation, and this compounded the problems inherent in implementing the rights created by the act. In this chapter I consider how business reacted to the OSH Act, the scope and content of its political activity, and the challenge that the business offensive posed to workplace reform.
The Development of Class Organization
The mobilization of business opposition was economically rational. International markets became more competitive and profit rates declined in many industries. For many manufacturing firms, where OSHA’s impact would be felt most strongly, economic conditions had deteriorated to the point where increased costs could not easily be absorbed.
The new approach was also self-conscious and carefully thought out. The legislative defeats of the late 1960s were sobering to corporate executives, who were not used to losing legislative battles; many reached the conclusion that a major overhaul in business politics was necessary. David Rockefeller provided his corporate colleagues with a particularly trenchant assessment of their situation. According to Rockefeller, the attack on business challenged the foundations of American capitalism. Critics of business, he observed, challenged the focus, aim, and scope of corporate practices. Many people had, in fact, concluded that “the system is beyond reform” and intended to “destroy the capitalist framework.” The cross-industry nature of the new regulation was particularly worrisome because it encouraged people to think in global terms. “Consumerism is equated in the public mind,” Rockefeller noted, “with the idea of the individual against business—all business” (emphasis in text). The “social contract” that bound business to society was being renegotiated, he counseled his colleagues. Unless they took a more active role in shaping it, they would see more, not less, business regulation.2
Others issued similar warnings. The business press filled with critical retrospectives by managers and business school professors on how and why the business community had failed to anticipate or prevent the anticorporate tide of the 1960s. Three lessons were regularly repeated: first, lobbyists had to offer positive solutions to problems; they could not simply defend the old order. Second, corporations and trade associations had to take a more active role in Washington and not lobby from distant corporate headquarters. Third, they had to teach Americans the virtues of profit making and free enterprise. In short, business had to refashion its ideology for a new age and develop a new organizational network if it was to retake the political offensive and contain social reform.
Industry began to build the necessary infrastructure in the early 1970s. The proliferation of new lobbying organizations and the revitalization of old ones was impressive. In 1972 the leaders of the largest corporations formed the Business Roundtable. It was the first new interindustry organization since the 1940s—the first to represent the largest corporations since the formation of the Business Council (BC) during the New Deal. Most important, it provided the multinationals with an organizational forum in which they could consider the principles as well as the details of basic policy issues.
Despite the elitist character of the Business Roundtable, the business mobilization was broadly based. Trade associations moved to Washington and corporate political action committees proliferated. In 1975 NAM relocated and, for the first time, registered as a political lobbying organization. Concurrently, the Chamber of Commerce stepped up its activities and sought closer ties with the academy, better relations with the media, and tighter coordination among large and small firms. The small business lobby was also revitalized. The National Federation of Independent Business, a paper organization throughout the 1960s, lobbied aggressively after 1970 and represented the special interests of small business before congressional committees overseeing the social regulatory agencies.
There were still enough different business organizations to reflect even the narrowest economic interest, but there was a new emphasis on classwide coordination. The Roundtable adopted internal policies that encouraged firms to present a common public face despite private divisions; its policy pronouncements stressed the common interests of its members. In keeping with the new spirit of cooperation, and the new awareness of overriding common interests, the Chamber of Commerce and NAM—historic rivals—attempted to merge in the mid 1970s. Although NAM pulled back at the last minute, ideology played no part in the rift. Its leaders concluded that its smaller numbers would result in the effective dissolution of the organization in the larger chamber. The Chamber of Commerce, in turn, established the Center for Small Business and the Council for Small Business in 1976 to coordinate the activities of the diverse business interests in the organization.
At the same time, business organizations made a concerted effort to mobilize and coordinate the activities of a broad spectrum of “grassroots” business interests. Corporate executives were encouraged to take a more personal role in lobbying the federal government. Parent firms were advised to expand their public affairs staffs and recruit their stockholders, employees, and home communities to lobby for and against legislation that affected them.
A wide variety of corporate-sponsored organizations emerged specifically to fight the new regulation. The Chamber of Commerce founded the National Chamber Litigation Center (NCLC) in 1977 to challenge public-interest reform and health and safety regulation in the courts and before agencies. It also organized a Stop OSHA campaign to coordinate business opposition to the agency in Congress. Exxon, Mobil, General Electric, IBM, Alcoa, and other corporate giants helped found the Center for Law and Economics at the University of Miami to teach corporate managers and public officials the principles of conservative economic thought. Joseph Coors, president of Adolf Coors Company, J. Robert Fluor, chair and chief executive officer of Fluor Corporation, and G. James Williams, financial vicepresident of Dow Chemical, helped create the National Legal Center for the Public Interest (NLCPI), funded by the auto, steel, and oil industries. Modeling its strategy and tactics on those of the public-interest lobbies, the NLCPI sought judicial review to limit agency discretion. Its Denver affiliate, for example, helped mount the Idaho lawsuit that resulted in the Supreme Court decision that limited OSHA’s right to inspect firms without a search warrant. Forty firms contributed $1 million to found the American Industrial Hygiene Council (AIHC) to fight one regulatory proposal: OSHA’s generic carcinogen standard. The AIHC grew to include over 150 firms and trade associations.3
The Ideological Offensive
Many of the new organizations were designed to help firms mount a sophisticated challenge to health and safety regulation. The Center for Law and Economics was established to give companies “a significantly new perspective on the world.” The NLCPI litigated in the name of “free enterprise” and “limited government,” rather than in the interests of any single firm or industry. Michael Uhlmann, president of the NLCPI in the late 1970s, defined the organization’s purpose as “the defense of the system,” albeit one “whose benefits happen to be the preservation of a large degree of private decision making.”4
Applied to OSHA the defense of the “system” meant an effort to restore managerial prerogatives at work and reduce the costs of regulation to affected industries. Both tactics were important to a wide variety of industrial interests. Employers had failed to defend these ideas successfully in the 1960s, however, because they had treated them as self-evident propositions—component parts of the natural rights of private property holders.
In the 1970s industry shifted gears and, like health and safety reformers, sought to frame its demands with a concept of the public interest oriented to industry’s needs. Many of the most important firms and interindustry groups ceased to deny the right of the state to regulate markets or the reality of the health and safety crisis. Instead, they defended their interests in more subtle ways. Most important, employers attempted to identify their particular interests in lower costs and higher profits with a general societal interest in jobs, economic growth, and capital investment. Economic growth, business suggested, was not only as important as protection but was the precondition for it. Therefore the state had to assess the effect of protective standards on the economy and take care to choose control measures that minimized the economic resources devoted to health and safety. Though subtle, this shift in approach was significant because it reopened the underlying issue: the ordering of societal priorities. Business found something to argue for and, thereby, the constructive approach that it had lacked; it supported “economically sound” regulation.
The climate was ripe for this kind of appeal. In the 1960s reformers could argue for the subordination of the values of production to those of protection by reminding Americans, as Secretary Wirtz had done, of what “national affluence” made possible. In the 1970s, when affluence was threatened by more competitive international markets, oil “shocks,” and a host of other economic problems, appeals to the imperatives of “resource scarcity” and the importance of production took on new meaning and helped business redefine the problem of health and safety.
Concretely, employers made three related arguments: First, society should free resources for capital investment by reducing the costs of regulation to firms. In the long run, this would give Americans the best of both worlds. On the one hand, higher rates of investment would lead to higher standards of living. At the same time, living in a richer society, people would be able to take better care of themselves and work less. Second, health and safety standards should be subjected to economic review procedures that weighed the benefits of intervention to protected groups against the costs of regulation to society as a whole. Third, managers should be given discretion to organize work as they saw fit. If the state eschewed bureaucratic “interference” with production and allowed firms to adopt the most efficient protective measures, it would encourage industrial innovation and productivity growth.
By far the most important component of the business ideological offensive was its claim that society’s interest in economic growth and capital investment was equal to, if not prior to, its interest in protection. As I argued earlier, economism is reproduced, in part, because workers and labor organizations believe that their jobs and standards of living depend on private investment. If they act in this way, they are likely to limit their demands to things that are compatible with corporate profitability. Public policy that internalizes this point of view is likely to reinforce this kind of worker activity.
Industry began to demand economic relief from health and safety standards as soon as OSHA started regulating. Nonetheless, it took several years for business groups to figure out how to make this claim generalizable. At first, individual firms and trade associations asserted the needs of particular industries and challenged the feasibility of particular standards. The plastics industry’s opposition to OSHA’s vinyl chloride rule illustrates the basic strategy.
In 1974 several companies in the vinyl chloride industry, which employed 7000 workers, reported that 16 employees who worked in polyvinyl chloride production plants had died from a rare form of liver cancer. The industry is divided into three segments: the production of vinyl chloride monomer (VCM), used in the manufacture of polyvinyl chloride (PVC); PVC resin production; and the fabrication of consumer products from PVC, such as pipes, tubing, floor tiles, and phonograph records. Since the 1920s, research has indicated that workers in all three segments are exposed to abnormally high risks of liver and kidney damage, as well as skin, stomach, and circulatory disorders. In response, one company, Dow Chemical, voluntarily reduced exposure levels to 50 ppm on an eight-hour time-weighted average and set a maximum level of 100 ppm. But the rest of the industry rejected claims that vinyl chloride was toxic and adopted the ACGIH 500 ppm threshold limit value (TLV). They maintained it despite growing evidence that VCM was also a carcinogen.5
In 1971 OSHA adopted the 500-ppm exposure level when it adopted the ACGIH’s list of consensus TLVs. After the 1974 reports, it proposed to reduce the permissible exposure to “no detectable level”; the polyvinyl chloride industry strongly objected to the proposal. Although the industry challenged the evidence relating worker exposure to cancer and the technical feasibility of achieving this level of protection, it stressed the economic effects of the standard. The Society of the Plastics Industry (SPI), representing the affected firms, issued a report that argued that a no-detectable standard would close down all PVC resin plants and hurt all industries that used vinyl chloride. In total, $65 billion in production and 1.6 million jobs would be lost. The results, according to the SPI, would be “catastrophic.”6
Although this strategy remained attractive to many firms and industries, the courts forced employers to find an alternative approach in 1974 with a court of appeals ruling on OSHA’s asbestos standard. The health hazards of asbestos were well known when OSHA was established; they had played an important part in the congressional hearings on the OSH Act. As a result, the agency acted quickly and issued a two-fiber standard as its first new permanent rule in 1972. But OSHA concluded that compliance was not immediately feasible for the industry and, based on economic and technical considerations, allowed firms four years to comply. In response, the AFL-CIO’s Industrial Union Department challenged OSHA’s standard, charging that its interpretation of Sec. 6b(5)’s reference was incorrect. That section, it maintained, precluded the agency from taking economic factors into account in health standard setting.7
The court of appeals rejected the federation’s argument and upheld an economic reading of the Sec. 6b(5) reference to feasibility, but its decision also blocked the efforts by particular industries to seek relief because of high compliance costs. In IUD v. Hodgson, the court ruled that OSHA standards could put individual firms out of business and cut into the profits of all firms in a particular line of business. A standard was economically infeasible only when it threatened the existence of an entire industry. According to the court, common usage suggested that “a standard that is prohibitively expensive is not ‘feasible.’” However, the court cautioned,
This qualification is not intended to provide a route by which recalcitrant employers or industries may avoid the reforms contemplated by the Act. Standards may be economically feasible even though, from the standpoint of employers, they are financially burdensome and affect profit margins adversely. Nor does the concept of economic feasibility necessarily guarantee the continued existence of individual employers.8
Once the court of appeals made clear that the courts would not look favorably on efforts by industries that pleaded special cases, trade associations and other business groups shifted their strategies and asserted the value of production in general. The standards of OSHA they argued, threatened the viability of the economy as a whole. The SPI’s challenge to the vinyl chloride standard foreshadowed this strategy by estimating the economic impact of the standard on overall production. The court of appeals also seemed to approve of this direction in IUD v. Hodgson when it noted that “complex elements” were relevant to the determination of economic infeasibility, including the impact of standards on the competitive structure of American industry or the ability of an industry to compete in the world market. After 1974, these themes came to dominate industry’s case against social regulation.
To be sure, individual firms and industries continued to challenge particular standards and argue that the costs of compliance were too large to bear, or that mandated controls were technically infeasible, thereby hoping to satisfy the criteria established in the 1974 decision. In 1978 the cotton textile, lead, and chemical industries challenged OSHA standards on the grounds that they could not absorb the capital costs of compliance and “whole product lines” would go out of business.9
After 1974, however, firms and industries stressed society’s general economic interest as much if not more than their own particular costs. Regulation meant lost productivity, price inflation, and declining international competitiveness. On this level, business groups spoke with one voice, albeit in different tones. The Chamber of Commerce struck a populist note and portrayed the problem in classically antistatist terms.
All of us pay for OSHA’s failures. We pay as consumers when the goods we buy cost more in the marketplace. We pay as taxpayers with more and more whittled from our paychecks to fund an agency that is heavy on expenses but lean on results.10
The Business Roundtable’s 1979 Cost of Government Regulation Study took a more measured tone and appealed to the norms of efficiency. But it reached the same conclusion. The “imposition of large cost burdens on the private sector” rested “ultimately on the U.S. economy.” The study estimated that the “incremental costs” to 48 member firms—costs in addition to what firms would have undertaken in the absence of regulation—of 6 regulatory agencies, including OSHA and EPA, were $2.6 billion in 1977, or more than 10% of their total capital expenditures in that year.11 Moreover, the Roundtable argued, these costs were only a small part of the total burden. There were “many less visible secondary effects that cause substantial incremental costs . . . to society generally,” including “losses in productivity of labor, equipment and capital, delays in construction of new plants and equipment, misallocation of resources and lost opportunities.”12
If government was to take these considerations into account, it had to have a way of assessing the economic implications of agency standards. Neither the OSH Act nor judicial review of OSHA rules provided a formal mechanism to weigh the impact of standards on the economy as a whole. Accordingly, business groups urged Congress and the executive to adopt an economic review procedure in which “objective” third parties would use “neutral” decision-making tools to review agency rules.
The AIHC recommended that the assessment of health hazards “be taken out of the government arena” and viewed outside the “political framework” by “the best scientists government can hire.”13 Basic social regulatory policy would begin from the premise that there are “socially acceptable” levels of risk. These levels, the AIHC suggested, would be established by panels of independent experts who took economic as well as scientific factors into account.14
Cost-effectiveness and cost-benefit tests were the preferred ways of making sure that society’s general interest in economic growth and capital investment was respected. In general terms, cost-effectiveness tests require that agencies achieve their stated goals in the most efficient manner possible. Cost-benefit tests apply a stricter standard and require agencies to forgo regulating in cases in which the net costs of a particular action outweigh the net benefits. By the late 1970s, a consensus had formed among business groups that both tests had to be applied to agency rulemaking. Where health and safety agencies resisted these procedures, business groups also argued for centralized oversight that imposed economic review on regulators.
The defense of managerial prerogatives, a long-standing priority of industry, was also rehabilitated by this emphasis on economic growth and investment. In defending the freedom of managers, employers suggested three major changes in occupational safety and health regulation: the adoption of performance standards, “cooperative” enforcement, and limits on worker rights to participate in the determination of working conditions. Taken together, these steps, they claimed, would also help revitalize the economy.
Performance standards establish hazard-reduction goals rather than specify changes in physical plant, machinery, or work practices. Employers argued for them on several grounds. Standards that mandate detailed design changes, they claimed, were counterproductive. If OSHA set a goal of a 10% reduction in work injuries, firms could use the expertise of plant engineers and supervisors to meet it in ways that distant Washington bureaucrats, inexperienced in production, were unlikely to discover. This reform was particularly necessary, they argued, because productive techniques and compliance methods changed constantly; detailed regulations might force firms to adopt outdated rules. Moreover, engineering controls often increased costs far beyond what was necessary and at the same time “stifled innovation.” Firms could accomplish the same protective goals if they were allowed to substitute personal protective devices such as ear plugs and respirators for the engineering controls generally relied on by OSHA.15
Employers also argued that OSHA should cooperate with, rather than “punish,” firms that failed to provide healthy and safe workplaces. Penalties should be deemphasized, and OSHA inspectors should consult with firms about ways to improve their health and safety practices. Penalty-based enforcement was both inefficient and overly “adversarial.” According to business lobbyists, most firms wanted to comply with OSHA regulation, but many were unaware of the complex and often confusing rules adopted by the agency. In this context, the “polarizing” presence of inspectors eager to find violations and levy fines increased employer hostility to the entire regulatory effort.
As an alternative, employer representatives suggested that OSHA negotiate compliance agreements with firms and that firms with good safety records be granted blanket exemptions from OSHA inspections. Ideally, OSHA should completely forgo penalties except in cases of repeated violations; should allow the agency’s regional directors to adjust citations and penalties at informal conferences requested by employers; and should discipline “antibusiness” compliance officers—those whose citations were systematically overturned by the Occupational Safety and Health Review Commission.16
Industry also argued that Congress and the agency were misguided in attempting to involve workers in the implementation of the act. These efforts increased labor-management conflict and complicated OSHA enforcement because worker participation encouraged employees and unions to use their health and safety rights as weapons in collective bargaining. According to the Chamber of Commerce, OSHA’s “interjecting itself into the collective bargaining setting” had “a potential for seismic repercussions.” It was “an opportunity for abuse and union harassment of employers.” Also, by making occupational safety and health adversarial, state-mandated worker participation undermined the contribution that in-plant programs and voluntary management committees made to workplace health and safety. Corporations were interested in worker protection, and OSHA could supplement their efforts by educating and training employers and employees. But aggressive enforcement of worker rights to participate in implementation of the act, including compensation for time spent with inspectors, protection from retribution for refusing hazardous work, and interference with company pay scales and hiring practices in the interests of worker safety, alienated employers and discouraged private efforts to improve working conditions.17
Many of these claims had been made in defense of the existing system in the late 1960s; framed in this new way, however, they took on new meaning. No longer were employers defending state agencies and private professional groups. Rather, they were championing the rights of society to higher standards of living. To be sure, their own interests would also be promoted by deregulation. But this was a by-product of reforms necessary to promote everyone’s interest in the health of the economy.
The Rehabilitation of Market Capitalism
Having shifted from opposition based on the costs of particular standards to support for economic review of the effects of rules on the macroeconomy, employers were better positioned to answer health and safety reformers’ claims about the failures of market capitalism. Reformers had argued that markets failed to provide an adequate level of health and safety and that society’s general interest in protection required that government impose regulations that increased the firms’ costs of production. In contrast, industry’s new view of the problem argued that by inhibiting growth, regulation caused another kind of market failure. Moreover, regulation promoted workers’ particular interests in protection against society’s general interest in capital investment.
The significance of this ideological redefinition cannot be overemphasized. As formulated, it relegitimated market capitalism. Business had fought social regulation in the 1960s by defending the free market, and health and safety reformers had been able to use the classic theoretical defense of the market system—microeconomic theory—against them. According to microeconomic principles, when markets “failed,” that is, when all the costs (and benefits) of production were not reflected in the prices of goods and services, government had a positive obligation to make sure that the “external” costs (and benefits) to third parties such as workers and consumers were “internalized.” Whatever the merits of the microeconomic approach, the reformers’ claims, posed in this language, were hard for employers to rebut.
By shifting attention to the macroeconomy, this new view undercut the conventional market-failure argument. Viewed from the perspective of the growth of the system as a whole, social regulation imperiled rather than perfected the market system. The macroeconomic critique also restated the logic of economism. Because workers were dependent on capital investment for jobs and income, the interests of business in profits were general interests and took precedence over all other interests.
Still, once employers had translated their opposition to OSHA into a generalizable economic critique, a number of rather difficult political issues remained to be resolved. Almost all business groups agreed that OSHA should be required to do some form of cost-benefit analysis: the agency should be required to measure the aggregate economic costs of regulation and justify them with reference to specific and quantifiable benefits. But there were four potential pitfalls in this approach.
First, most interested parties recognized that it was difficult to estimate the economic value of health benefits, including lives saved. Many regulatory reformers who were otherwise sympathetic to the economic critique of social regulation were concerned that overly rigid cost-benefit tests would artificially bias policymakers against high levels of protection. Their concerns had to be addressed.
Second, given the right assumptions, many costly regulations could pass cost-benefit tests. The methodology is notoriously subjective; the analyst must make several judgments about what to count as costs and benefits and how to monetize them. Consider the problem of valuing a life, for example. Policymakers have used estimates varying from $200,000 to $7 million.18 They also have had to consider how the value of future lives should be calculated. Should lives saved 20 years from now be discounted, as economists and accountants routinely discount income streams to assess the present value of assets? If so, at what rate? A10% discount rate, a convention in economic forecasting, all but eliminates the value of long-term health benefits. In contrast, if future benefits are not discounted, the cumulation of lives saved in the future can lead to extremely high benefit estimates.
Third, many widespread hazards are extremely costly to workers and taxpayers. If the analyst chooses to recognize and monetize the entire range of direct and indirect effects of injuries and disease, including lost income, medical care, job retraining, lost productivity, public assistance, and pain and suffering, the benefits of regulation are enormous. If the analyst does not discount these benefits and uses liberal estimates of the value of lives saved, almost any standard can be justified.
A cost-benefit study of the 1972 asbestos standard, for example, performed independently of OSHA and presented at a 1975 DOL conference, demonstrated the extreme sensitivity of cost-benefit test results to the analyst’s assumptions. Employing a wide range of reasonable-alternative assumptions, Russell Settle came up with 72 different estimates of the net benefits of OSHA’s two-fiber standard. The benefit-cost ratios of these estimates ranged from .07 to 27.70.19
This variability did, in fact, discourage many regulators who were otherwise cost conscious. Dr. Morton Corn, President Ford’s choice to be OSHA’s third assistant secretary, described his experience with the methodology in this way:
After arriving at OSHA I engaged in an in-depth consideration of cost-benefit analysis, applying the methodology to the cokeoven standard. . . . With the dose-response data at our disposal, various assumptions were used to ring in changes on different methodologies for estimating benefits. The range in values arrived at, based on the different assumptions, was so wide as to be virtually useless. The conclusion I reached after this exercise was that the methodology of cost-benefit analysis for disease and death effects is very preliminary, and one can almost derive any desired answer.20
Finally, the creation of an economic review process raised serious jurisdictional issues. Administrative regulation involves all three branches of government in a complex and mutually interdependent process of rulemaking. The boundaries between their respective jurisdictions have never been clear, and all jealously guard their prerogatives to supervise the bureaucracy. Congress insists on the sanctity of its legislative mandates; the executive branch argues for agency discretion; and the courts maintain the final right to determine the legitimacy of agency decisions.
The economic review process changes this division of authority. A hard-and-fast cost-benefit test imposed by Congress limits agency discretion. The same test, imposed by the White House on the agencies, interferes with congressional intent in authorizing legislation. And challenges to the economic review process force the courts to make complex value judgments about technical as well as political issues.
These problems were not insurmountable, as the Business Roundtable’s carefully considered 1980 recommendations on regulatory reform demonstrated. The Roundtable accepted the fact that automatic decision rules, like cost-benefit tests, were unrealistic and would probably be unacceptable to the White House, which had a vested interest in maintaining its discretion over agency policies. Instead, it proposed the following:
▪ All agencies, including independent commissions, should be required to compare the costs of alternative approaches to problems and justify the selection of more costly alternatives.
▪ Agency regulatory analyses should be part of the rulemaking record and subject to judicial consideration when agency rules were subject to final judicial review.
▪ White House oversight of the review process should be centralized in a single agency or body appointed by the president and subject to confirmation by the Senate.
▪ The courts should be ordered to construe congressional delegation of authority narrowly unless statutes contained a clear statement of authority.
In sum, the Roundtable proposed that agencies be forced to do cost-benefit tests but that final decisions about protection would be made by the White House and scrutinized by the courts.21 The Chamber of Commerce and NAM quickly rallied around similar proposals.
Allies in the Academy
The success of the business offensive depended in large part on the employers’ ability to redefine the general and particular interests at stake in social regulation and sell those ideas to the wider society. With the economic resources at its disposal, the business lobby mounted a concerted campaign to shape elite and mass opinion, using advocacy advertising to reach lay audiences and financial support for conservative foundations and think tanks, such as the American Enterprise Institute for Public Policy and the Hoover Institute, to influence academics.
Many academics did, in fact, help business make its case. Economists were particularly active in this movement. Political scientists and policy analysts also played critical roles by producing distorted economic impact studies that demonstrated the high costs of regulation, one-sided critiques of conventional forms of standard setting and enforcement, and theoretical briefs for cost-benefit analysis and other forms of economic review.
Dr. Murray Weidenbaum’s efforts are probably best known. His estimate that federal regulation cost Americans approximately $66 billion in 1976 and grew to over $100 billion in 1979 appears to be the most often cited impact study. President Reagan used Weidenbaum’s figures in his 1981 message on the economy, and they are regularly repeated in corporate advertising.22
Working under the auspices of the Center for the Study of American Business at the University of Washington at St. Louis, Weidenbaum and his associates came up with a fairly simple way of tackling the difficult problem of estimating the total costs of regulation. First, they collected whatever data were available, including company reports, to calculate the direct “costs of compliance” in 1976. These were $63 billion. Then they estimated the administrative costs of regulation by adding the budgets of the various agencies and departments involved in regulation. These costs were $3.2 billion. Thus the total costs of regulation were about $66 billion. Of this total, occupational safety and health accounted for $4.5 billion, including $483 million in administrative costs and $4.02 billion in compliance costs.
Using these figures, Weidenbaum calculated a multiplier, or the ratio of compliance costs to administrative costs. This multiplier—20 in 1976—was then used to estimate total regulatory costs in subsequent years. Weidenbaum’s 1979 estimate of a total regulatory burden of more than $100 billion was based on administrative costs of $4.8 billion and estimated compliance costs of $96 billion (20 multiplied by $4.8 billion). The total costs of regulation in 1979 amounted to 4.3% of the GNP. Weidenbaum actually believed that these figures underestimated total regulatory costs because they did not take the “induced” effects, such as the impact of regulation on labor productivity or innovation, into account.23 Nonetheless, they suggested the size of the burden and the urgency of the crisis.
As many critics have pointed out, there are a host of flaws in Weidenbaum’s study, ranging from double counting to conceptual confusion about the nature of economic costs. The list is rather long, but four errors are particularly egregious. First, by using a constant multiplier from one year to another, the study ignores the fact that the costs of regulation are usually high in the initial years and then diminish as firms come into compliance. Second, Weidenbaum failed to distinguish between social regulation and the ordinary operations of government, including, for example, the costs of Internal Revenue Service filings. Third, the study did not acknowledge the difference between incremental costs, that is, costs due to regulation, and expenses that firms would undertake on their own. Fourth, Weidenbaum failed to distinguish between regulatory programs that transfer costs from one party to another—clean-air programs, for example, reduce property damage caused by pollution but raise industries’ production costs and consumer prices—from programs that simply increase total costs to society.24
For Weidenbaum and his supporters, however, the numbers were less important than the underlying ideas. Weidenbaum, later appointed chair of the Council of Economic Advisers by Ronald Reagan, was adamant about the procapitalist implications of his study and unimpressed by his critics. His work was intended, he told Congress in 1979, “to shift the public dialogue onto higher ground.” From that ground, environmentalists, consumer groups, and other reformers could be seen for what they were, “self-styled representatives of the public interest who have succeeded . . . in identifying their personal prejudices with national well being.” In contrast, corporations “serve the unappreciated and involuntary role of proxy for the overall consumer interest.”25 Weidenbaum was willing to admit that his figures could be challenged, but precise figures were beside the point. If anything, his figures underestimated the real impact of regulation because its costs were “immeasureable”—regulation threatened the “basic entrepreneurial nature of the private enterprise system.”26
Though popular with politicians and the media, Weidenbaum’s study was sufficiently flawed to leave the defense of economic review vulnerable to its critics. But other, more careful policy analysts provided a more rigorous critique of the agencies’ basic approach to rulemaking, based on two related ideas. First, market exchanges remained the appropriate point of departure for designing health and safety policy. Second, social regulatory policy failed to acknowledge the inevitability of risks and the desirability of risk taking in modern industrial societies.
The first point, that regulatory programs should be evaluated according to the norms of the marketplace, proved increasingly popular as conservative economic ideas resurfaced in the wake of the 1973-1975 recession. Echoing business complaints that the heavy hand of government had stifled economic growth and innovation, many policy analysts rediscovered the case for markets. In a highly influential critique of OSHA written for Congress, Richard Zeckhauser and Albert Nichols, both policy analysts at the Kennedy School of Government at Harvard University, suggested that the norms of efficiency required that the agency rely more heavily on market forces. Conventional standard-setting and enforcement programs were inflexible, they claimed. At a minimum, OSHA should use performance standards; but economic incentives systems, such as workers’ compensation and labor markets, were even more desirable.27
Two related American Enterprise Institute (AEI) studies argued for a complete overhaul of the regulatory apparatus and a return to a market-based system supplemented by a reformed workers’ compensation program. In the first study, Robert Smith argued that “the safety and health mandate of the Occupational Safety and Health Act of 1970 is inconsistent with the goal of promoting the general welfare” because it “force[s] more safety and health on society than workers would choose for themselves if they had to pay the costs of safety and health directly.”28 In a companion piece on workers’ compensation, James Chelius argued that the OSH Act “scapegoats” employers who, in fact, play only a small role in creating occupational hazards. According to Chelius, the most efficient program would allow workers to choose between jobs with different wage and risk characteristics. Government regulation of labor markets was justified only when workers did not know about hazards at work or could not bargain for risk premiums for assuming them. Where labor markets are competitive, and workers are informed about the risks they face, regulation is unnecessary.29
Most academic critics of OSHA recognized that labor markets and workers’ compensation were often inappropriate ways of protecting workers against health hazards. For these dangers, they recommended the kinds of economic review procedures that business had endorsed. Zeckhauser and Nichols, for example, recommended that OSHA should be forced to take “explicit consideration of economic costs” when choosing health targets. This would lead OSHA to focus its standard setting on areas where it could achieve “the greatest health gains for whatever resource costs they entail.”30 Recognizing that this approach to standard setting contradicted the act’s provisions, they recommended amending the law to make economic review possible.31
Cost-effectiveness and cost-benefit tests appealed to policy analysts because they introduced efficiency criteria in government standard setting. To nearly all policy analysts trained in neoclassical economics, sound policy is efficient in a particular sense: when scarce resources are devoted to their most economically productive uses. This is accomplished when certain marginal equalities are satisfied. For example, firms should produce a particular good until the marginal revenues from its sale equals the marginal costs of its production. Similarly, employees should work up to the point where the marginal benefits of their labor (i.e., wage gains) equal the marginal costs (i.e., lost leisure time).
The neoclassical view also argues for using market values to determine the costs and benefits of state action. Thus economic reviewers should, wherever possible, calculate costs and benefits by using the prices that individuals place on them when they act in markets. For example, the value of health and safety at work should be determined by observing the tradeoffs that workers themselves make between wages and safety. Costs, in turn, should be calculated by adding the market prices of the resources consumed, and opportunities forgone, as a result of state action. By following these rules, policymakers will choose policies that are “optimal” from an economic point of view.
W. Kip Viscusi, a professor of business administration at Duke University and a consultant to OSHA during the Reagan administration, states the case for both of these criteria in his suggestions for reforming OSHA rulemaking:
First, the government should select the policy that provides the greatest excess of benefits over its costs and, since one alternative is to do nothing, it should not adopt any policy whose costs exceed its benefits. Second, to obtain the highest net gains from policies, the scale of the programs should be set at levels where the incremental benefits just equal the incremental costs; further expansion or reduction in the policy will produce lower net benefits overall. Third, all policies should be cost-effective, that is, the cost imposed per unit of benefit should not be greater than for other policies.32
Finally, wherever possible, administrators should use workers’ “willingness to pay” as revealed in risk premiums to value the benefits of standards. If risk premiums do not provide reliable information, policymakers should rely on other measures of how workers value protection, including survey research, to calculate benefits.
Conservative academics helped buttress industry’s claim that risks were an inevitable by-product of industrial society. Indeed, Aaron Wildavsky, head of the School of Public Policy at the University of California at Berkeley, went one step further and argued that risk taking in markets was likely to provide more health and safety than protective regulation did. Wildavsky’s argument was simple and, on its face, compelling. “In the hundred years from 1870 to 1970,” he observed, “every increase in industrialization and wealth, except possibly at the highest levels, was accompanied by a corresponding increase in safety from accident and disease.” “Richer is safer,” he claimed, and he used the case of workplace safety to illustrate the point. According to Wildavsky, the simplest way to reduce workplace accidents is to improve machinery, reduce the number of workers involved in production, and shorten the workday. Economic growth and technical change accomplish all these things. Conversely, by reducing productivity and inhibiting innovation, protective regulation discourages them.33
Wildavsky also suggested that, divorced from the discipline of the market, and taken to its logical conclusion, the ethic of protection would lead to demands for unlimited risk reduction.
If they are permitted to proliferate, direct demands for reduction of risk group-by-group, case-by-case, are inexorable. For one thing, the politics of anticipation requires that all possible sources of risk be eliminated or mitigated. Since these sources are virtually infinite in number, subject only to the fertility of the imagination, there is no limit on what can be spent on them. For another, there is no principled reason why risks that affect certain groups should be reduced while those potentially affecting other groups are not.34
The political system would compound the problem because “accommodation by logrolling will lead to the usual coalitions of minorities,” each assenting to the other’s demands for protective legislation. Echoing the economists’ critique of departures from the market allocation of goods and services, Wildavsky concluded that “the result will be more ‘safety’ than anyone would choose to buy.”35
The Perspective Shifts
In many respects, these claims are traditional. Defenders of the status quo in capitalist democracies have generally resorted to two kinds of arguments. The first asserts that capitalism as an economic system is superior to any other possible system; the second asserts that markets promote individual liberty. Employers and their allies in the academy attacked OSHA and social regulation on similar grounds. Protective regulation, they argued, inhibited the productive efficiency of the economy and the freedom of the market.
But employers had learned how to make this case under new conditions; new hazards, new movements, and new values forced them to rehabilitate their ideology and organizations. Few people were convinced of the inherent virtues of self-interested action in markets; people wanted to believe that they were pursuing the public interest. Business learned to make this case: by serving society’s general interest in capital investment and economic growth, business too served the public interest. Any measure that increased its ability to innovate and compete could be defended in these terms. In this way, business retook the ideological offensive.