Expensive Rules

For 48 firms: $2.6 billion

S Ohio's exasperation with the environmental protection bureaucracy in California was surely understood by executives at many other companies, where "the high cost of Government regulation" has become one of the most cited sources of corporate angst. How steep is the price of meeting the proliferating demands and standards imposed by regulators? Estimates of the annual cost of federal regulation alone to U.S. industry have ranged from $79 billion a year (by Republican Economist Murray Weidenbaum) to $135 billion (by the Office of Management and Budget). Some Congressmen have tossed off estimates of $150 billion or more.

Last-week the Business Roundtable, whose members are the chief executives of some 190 of the nation's biggest corporations, issued its long-awaited report on regulation costs. The study, conducted by the accounting firm of Arthur Andersen, was a significant measure of the actual financial impact of regulation as experienced by companies.

A group of 48 Roundtable member firms, among them AT&T, General Motors, Exxon, Procter & Gamble, Dow Chemical and Eastman Kodak, were examined for the added costs caused in 1977 by just six federal regulatory agencies and programs. The total: $2.6 billion, which was equal to about 16% of the companies' net profits, 10% of their capital expenditures and 40% of their R. & D. budgets for the year. IBM Chairman Frank Gary, who supervised the study, reckoned that the $2.6 billion figure, extrapolated to cover the whole U.S. economy, would yield an overall cost of regulation that is "not inconsistent" with Weidenbaum's $79 billion estimate.

The study found the Environmental Protection Agency responsible for 77% of all the added costs, while the much criticized Occupational Safety and Health Administration accounted for only 7%. Requirements imposed by the Equal Employment Opportunity Commission were responsible for 8%, the Department of Energy for 5%, the Employee Retirement Income Security Act for 2% and the Federal Trade Commission for 1%.

The study did not examine the benefits of regulation or secondary costs, like losses due to construction delays caused by environmental rules. While conceding that many regulations are necessary, IBM's Cary also noted that the study showed plainly that the resulting expenditures can "often be wasteful and nonproductive." He urged that companies be given more latitude over how to achieve goals and argued that economic impact statements, in which the financial burden of new rules would have to be weighed against their benefits, "should become a way of life." --

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