How to Regulate the Regulators

What an absurd idea--a guardian to need a guardian!--Plato's Republic

Gerald Ford, presiding over a republic somewhat less ideal than Plato's, disagrees. Last week, as part of his war on inflation, he urged the creation of a "National Commission on Regulatory Reform" that could indeed act as guardian of the guardians--the deeply entrenched, highly independent federal agencies that regulate everything from the air waves to pipelines. The commission's task will be formidable: to identify and eliminate the hodgepodge of antiquated rules that in Ford's words, "increase costs to the consumer without good reason in today's economic climate."

Such a housecleaning is long overdue. Beginning with the establishment of the Interstate Commerce Commission (ICC) by Congress 87 years ago to bring the freewheeling railroad barons into line, the regulatory agencies have proliferated by the score into today's alphabet soup. In 1920, Congress set up the Federal Power Commission (FPC) to watch over the burgeoning hydroelectric industry; in 1934, the Federal Communications Commission (FCC) to monitor the new radio industry; in 1938, the Civil Aeronautics Board (CAB) to police the airlanes; in 1946, the Atomic Energy Commission (AEC).

Yet for all the genuine needs and good intentions of the time that brought them into being, the commissions have often become barnacled over the years. At times they seem more concerned with the interests of their industries than those of the public: rigging rates to protect even the most inefficient operators, discouraging new participants in a field and, worst of all, keeping consumer prices unnaturally high.

-The excesses are acknowledged by many of the regulators themselves. In a speech in Detroit last week, Federal Trade Commission Chairman Lewis Engman, 38, a Nixon appointee, sounded almost like an echo of Consumerist Ralph Nader, whose Center for the Study of Responsive Law has just published a massive 950-page citizens' guidebook to the "bureaucratic labyrinths" of the federal regulatory system.

Said Engman: "Most regulated industries have become federal protectorates, living in a cozy world of cost-plus, safely protected from the ugly specters of competition, efficiency and innovation." Estimating that such protection adds $16 billion a year to the nation's transportation bill alone, Engman added: "Our system of hidden regulatory subsidies makes welfare fraud look like petty larceny."

Engman's charge does not, of course, apply across the board. Many federal agencies have performed with distinction in the public interest despite small staffs, low salaries and ever-present political pressures. Yet others have all too often been what Economist John Kenneth Galbraith calls "an arm of the industry they are regulating--or senile." To critics like Galbraith and Engman, the ice in particular meets both disability tests. Although it has some 17,000 companies under its supervision--railroads, truckers, pipeline operators--it acts more like a mother hen than a watchdog. Trucks, for instance, are allowed to return home empty from deliveries (a rule, food retailers insist, that costs them $250 million in added freight each year. In turn, though railroads complain that the ICC favors truckers, they have been allowed to reduce or drop unprofitable passenger trains even when commuters need such service.

The agencies often defend such practices on the grounds that it serves the national interest to protect key industries --for example, faltering flag carriers like Pan American World Airways. Even so, such protective policies can backfire. They can encourage inefficiency; they can block badly needed new technologies. Communications satellites were long needed to relieve the overloaded U.S. long-distance telephone network, but largely because of FCC dawdling, the first domestic communications satellite was not launched until this year. By keeping natural-gas prices unreasonably low during the 1960s, the FPC discouraged exploration for new supplies and thereby helped create today's severe natural-gas shortage. (Paradoxically, after years of excessive regulation, the FPC now wants to stop gas regulation entirely, which prompts former FPC member Lee White to pose an intriguing question: Is it proper for a regulatory agency to deregulate itself?) Finally, some agencies may simply be redundant. An independent arm of the Treasury, the Comptroller of the Currency performs some of the same bank supervisory functions as the Federal Reserve and the Federal Deposit Insurance Corporation, and sometimes not as well:

in a recent audit of New York's Franklin National Bank, it failed completely to spot any signs of that institution's impending collapse.

-Reforming the regulatory agencies will not be easy. Indeed, the very nature of their multiple roles is often contradictory. As Lawyer Newton Minow, the FCC's former gadfly chairman, puts it: "I don't think you can be a legislator on Monday, a policeman on Wednesday and a judge on Friday." Beyond that, the agencies are richly staffed with political appointees who are often alumni of the very industries that they are supposed to regulate; they also are frequently vulnerable to powerful industrialist lobbyists.

Despite such obstacles, the national commission requested by President Ford should take some needed first steps.

For example, it could ensure greater agency independence by insisting that commissioners and high-ranking employees come from industries other than those they will be required to regulate, and be forbidden for a period of time to join those industries after they leave Government service. More important, it could set new regulatory standards that require agencies to consider the consequences of every action they take: Does it promote or impede competition? Does it serve the interest of only one company or the nation at large? Finally, the commission should promote a new public awareness of the functions and objectives of the regulatory agencies in the hope that an aware citizenry will not allow a repetition of past agency indifference or abuse. The President is surely right in his perception that unregulated regulators are a luxury that the U.S. can no longer afford.

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