Three and a half years ago, America was plunged into an economic tragedy by the misdeeds of a woefully underregulated financial sector. You might think this episode would have slowed efforts to depict the United States as a nation that subjects businesses to endless and misguided edicts. It did not. After a few weeks’ respite, the Chamber of Commerce, the Heritage Foundation, the Business Roundtable et al., along with virtually the whole GOP, returned to the old war cry. They are at it still, ignoring the lessons of the financial meltdown and the fresher memories of America’s worst mine disaster in four decades and most horrific oil spill ever.
You have to give these people points for staying on script. And their persistence, over decades now, has taken a toll—not just in old rules repealed, new rules blocked, and oversight budgets and authority slashed but in the way the regulatory function of government is perceived, even by many who seek to uphold it.
In Washington that job falls largely to a valiant band of progressive advocates and public officials. They tend to proceed one case at a time, since regulation, like government in general, polls better when broken into its component parts. Yet in the process of showing that this or that rule won’t be as expensive as lobbyists say, and that the health, safety or environmental payoffs will more than justify the cost, the defense team often inadvertently reinforces the prosecution’s view of regulation as an economic burden to be borne for the sake of a noneconomic gain.
In fact, the regulation of American business, despite its inevitable excesses and far more significant shortcomings, has been prodigiously good for us economically, quite aside from its other benefits. And you don’t need higher math or heavy-duty cost-benefit analysis to grasp that truth. It’s a lesson that leaps off the pages of modern American history.
Take financial regulation. Not the labyrinthine Dodd-Frank law, with all its lobbyist-driven twists and turns. I’m talking about the body of rules adopted in the 1930s after the last big financial meltdown. New Deal financial reform, beginning with the Glass-Steagall and Securities Acts of 1933 and the Securities Exchange Act of 1934, rested on a few clear ideas, including leverage limits, disclosure requirements, deposit insurance and the emphatic separation of government-guaranteed banking activities from unguaranteed trading and securities activities.
Those principles gave Americans a long respite from the financial panics that had been regular and devastating events since before the Civil War. For nearly half a century, until the deregulation orgy of the 1980s and ’90s, we had a stable financial economy—one that (unlike today’s highflying megabanks and megafunds) was generally viewed as an instrument of the real economy.
Finance, more than other fields, calls for restraints on the “natural liberty of a few individuals” in order to protect “the security of the whole society,” Adam Smith argued. His reasoning may help explain why the era of strong financial regulation in America coincided with our greatest and most evenly shared gains in prosperity. And yet, the forces responsible for the extraordinary success of that regulatory regime have often produced good results in other sectors of the economy.
The pharmaceutical industry, for one. Before the Food, Drug and Cosmetic Act of 1938, anyone with a bathtub and a chemistry set could enter the business, and the products of reputable companies like Squibb had trouble competing against the various forms of snake oil (often laced with unmentioned alcohol or morphine) that filled America’s drugstore shelves. It was only after regulation took hold that this country developed an industry of drug-makers with labs, scientists and a serious interest in understanding the effects of their wares. In the pharmaceutical world, as in the financial world, government oversight expanded Americans’ confidence in a market they were ill-equipped to scope out for themselves, and the industry as a whole enjoyed a long period of strong and steady growth. Call it the Uncle Sam bump.
The meat industry had a similar experience. Even before Upton Sinclair blew the whistle on Chicago’s meatpacking houses in The Jungle, US beef and pork producers faced a virtual boycott across Europe and wide distrust at home. It was pressure from high-road companies like Oscar Mayer, as much as public fears, that inspired the Federal Meat Inspection Act of 1906. A century later, American meat enjoys a substantial trade surplus, while the sellers of US-grown fruits and vegetables are steadily losing market share to imports from Mexico and elsewhere. That fact helps explain the produce industry’s support for the Food Safety Modernization Act of 2010, which promises to give it something closer to the same level of oversight long enjoyed by meat producers.
Today’s conservative ideologues like to make a sharp distinction between regulation and market forces. In practice, rules are just another channel of communication between the public and the business world—a way to express certain needs we cannot easily satisfy through our purchasing decisions alone. And no matter how we get the message across, necessity is the mother of invention. Entire industries—air bags, safety harnesses and the “scrubbers” used to reduce the sulfur pumped into the air by coal-fired generators, to name a few—have grown up in response to acts of regulation.
America is beginning to wake up to a long national habit of letting corporations and corporate and financial insiders set our priorities and shape our lives and surroundings. The era of unchallenged corporate power has left a legacy of problems that will require renewed trust in government and, in particular, in the use of government to make and enforce rules for the conduct of business. Along the way, we will have to get over the idea of regulation as an unnatural or suspect activity, transgressing a natural boundary between the public and private sphere.
Some 4,000 years ago, Babylon had standards of professional conduct for shepherds, builders and physicians. Medieval Venice, Pisa, Barcelona and Marseilles barred ship captains from taking on too much cargo or putting out to sea in dangerous weather.
Setting rules for business is one of the things that human societies do. It’s a normal function of government and a normal feature of the economy—of any economy in which the business world serves the wider world. Regulation’s champions, especially if they have microphones, should point this out occasionally.