Trump’s regulatory reforms need a phase two

Trump’s regulatory reforms need a phase two
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Here’s a billion-dollar question: Will President TrumpDonald John TrumpCould Donald Trump and Boris Johnson be this generation's Reagan-Thatcher? Merkel backs Democratic congresswomen over Trump How China's currency manipulation cheats America on trade MORE’s attempt to reduce federal regulation succeed where so many others have failed? The odds seem long. Since the 1940s, over 30 federal laws, executive orders or other presidential actions related to regulatory reform have been implemented, yet the number of federal rules continues to hit one high water mark after another. The good news is that there is some reason to believe the flood waters could recede.

The burden of regulatory accumulation is very heavy, from the macroeconomic drag on economic growth to the micro impacts felt by individuals struggling to understand overly complicated forms. Excessive regulatory build-up can mean lower wages, higher pricesreduced entrepreneurship, increased poverty, mounting stress and—maybe worst of all—a general undermining of the relationship between citizens and government.

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It’s worth noting that Trump’s reform efforts are similar, at least in spirit, to one of the few models that has actually delivered results. Successful regulatory reform is rare, but it’s not a unicorn.

The Canadian province of British Columbia accomplished a one-third red-tape reduction in three years between 2001 and 2004 by putting in place a “two-for-one” requirement: find two mandates to eliminate for each new one added. Prescriptive rules such as those telling forest companies what size nails to use when building bridges over streams were eliminated (rules such as these were estimated to add a billion dollars of additional cost for no benefit). Silly rules telling restaurant owners what size television sets to use were ditched. Incomprehensible tax rules were rewritten in language that, as the Revenue Minister at the time put it: “Fred and Mary could understand.”

Once the initial one-third reduction target was met in 2004, a “one-for-one” policy followed. A healthy momentum was in effect. Regulators continued to reduce requirements faster than they added them. To date, British Columbia has cut its rules virtually in half while turning around its economy, and maintaining top health and environmental rankings.

British Columbia’s bold approach delivered something unexpected — a governmental culture change where regulators themselves were part of the solution, consistently improving and preserving justified rules while also identifying and cutting red tape. Can Trump do the same?

Trump has put in place a similar “two-for-one” requirement (recently updated to three-for-one), but it is much narrower in scope than British Columbia’s, which applied to the vast majority of government rules. Only a small number of new “significant” U.S. regulations need to be offset. These constitute about 8 percent of new rules in recent years. Worse, so many exemptions have been carved out that agencies are likely to offset closer to 1 percent.

Why does such an important policy apply to so few regulations? The choice of measure has narrowed the scope of Trump’s reforms. British Columbia used a simple measure, which meant that the province’s two-for-one requirement could be applied broadly and progress could be reported transparently. We know the province started with 330,812 regulatory requirements in 2001 and now have 166,919.

The United States, by contrast, is using “opportunity cost” as its measure, which corresponds with the foregone benefits that society passes up when it enacts rules. It’s a hard concept to pin down, and even if it works well for the largest regulations, it’s not practical to apply broadly. It would be very difficult to create an opportunity cost estimate for each and every government rule. And since the vast majority of rules don’t have up-to-date measures of opportunity cost, the reach of Trump’s reforms is limited.

To achieve a culture change like British Columbia’s, Trump’s reforms could be broadened in a phase two. Here’s a three-step plan for how that could work:

First, the current two-for-one offset system, using the opportunity cost measure, could stay in place largely as-is for the biggest rules.

Second, to ensure most rules don’t escape scrutiny, the administration should require all regulating departments and agencies to count their rules using a simple, practical, and easily updateable measure. Then counts should be published on a regular basis. This level of transparency alone would be a giant step forward.

Finally, the president should set broader goals — like the one-third overall reduction target set in the early days of British Columbia’s reforms.

The president deserves credit for pursuing an ambitious regulatory relief agenda. The spirit is right, but the scope is too limited as government officials have tried to dovetail the new policies into old ways of doing things.

Fortunately, the lessons learned by a Canadian province over almost two decades show that successful regulatory reform is not as elusive as it may seem. British Columbia’s experience offers a guide as to how the administration can create a very promising phase two and effectively turn back the red-tape tide of regulations.

Laura Jones is a visiting research fellow with the Mercatus Center and the executive vice-president and chief strategic officer of the Canadian Federation of Independent Business. James Broughel is a research fellow for the State and Local Policy Project at the Mercatus Center at George Mason University and an adjunct professor of law at the Antonin Scalia Law School. Follow him on Twitter @JamesBroughel. They are co-authors of new Mercatus Center research on “Effective Regulatory Reform: What the United States Can Learn from British Columbia.”