Pres­i­dent Obama has ordered a government-​​wide review of busi­ness reg­u­la­tions in order to stim­u­late job growth and create a more inter­na­tion­ally com­pet­i­tive economy. Dan Danielsen, a pro­fessor of law and expert in cor­po­rate reg­u­la­tory strate­gies at North­eastern Uni­ver­sity, explains how the review may affect busi­nesses, con­sumers, and the economy.

How might an effort to stream­line busi­ness reg­u­la­tion be helpful to business?

At the most basic level, elim­i­nating duplica­tive, unnec­es­sarily bur­den­some or ill-​​conceived busi­ness reg­u­la­tion can improve busi­ness per­for­mance by removing the costs of com­pli­ance with the bad rules — an obvious ben­efit for busi­ness. Things get more com­plex, how­ever, when we move beyond the reg­u­la­tions that fall within the “exces­sive red tape” cat­e­gory to the much larger range of sub­stan­tive rules that affect busi­ness. This is because reg­u­la­tions almost always ben­efit some busi­nesses and hurts others. For example, elim­i­nating a rule requiring power plants to reduce green­house gas emis­sions may reduce costs for the plants, but it may also reduce busi­ness oppor­tu­ni­ties for the firms that supply the green tech­nology to reduce emis­sions. In other words, stream­lining sub­stan­tive busi­ness reg­u­la­tion will involve tough policy choices that may split busi­ness inter­ests — with some busi­ness win­ners and some busi­ness losers with each rule change.

Will this effort to stream­line reg­u­la­tion help or hurt consumers?

To the extent busi­nesses achieve costs sav­ings from elim­i­nating reg­u­la­tory “red tape,” con­sumers should see a ben­efit in the form of lower prices, assuming that the busi­nesses pass some of those sav­ings on to their cus­tomers. Assessing the net effects on con­sumers of changes in sub­stan­tive busi­ness reg­u­la­tion is a much more dif­fi­cult under­taking. Returning to our power plant example, elim­i­nating a rule that requires the reduc­tion of green­house emis­sions may lower the price of power, helping par­tic­u­larly those con­sumers least able to afford the higher price. On the other hand, a deci­sion to elim­i­nate the emis­sions rule may anger some con­sumers, including some poor con­sumers, who value a cleaner, safer envi­ron­ment and are willing to pay for it. Once again, we can see that sub­stan­tive reg­u­la­tory reform will involve policy choices that may split con­sumers, making it dif­fi­cult to claim a net ben­efit for con­sumers in general.

Could this reg­u­la­tory reform plan create jobs and stim­u­late the economy?

The short answer is “maybe.” To the extent the plan reduces unnec­es­sary reg­u­la­tory com­pli­ance costs, it should free up pre­vi­ously mis­al­lo­cated resources for more pro­duc­tive use. If these resources are sig­nif­i­cant, firms may invest them in ways that pro­duce jobs and growth. Moving beyond the “red tape” rules, if sub­stan­tive reg­u­la­tory reform is to lead to increased jobs and eco­nomic growth, the aggre­gate cost sav­ings for the reg­u­la­tory “win­ners” (like the power plants in the emis­sions rule example) would have to be larger than the aggre­gate adverse effects of the changes for the reg­u­la­tory “losers” (like the green tech­nology busi­nesses that used to help the power plants comply with the old emis­sions rule). Need­less to say, antic­i­pating the costs and ben­e­fits for the U.S. economy of numerous sub­stan­tive changes in busi­ness reg­u­la­tions is an extremely dif­fi­cult enter­prise. As a con­se­quence, Pres­i­dent Obama’s reg­u­la­tory team will face sig­nif­i­cant chal­lenges as it tries to ensure that the reg­u­la­tory reforms actu­ally under­taken do more good than harm for the economy as a whole.