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NERA report finds increasing cost of federal regulations harming U.S. manufacturing growth

By Josh Bond, Contributing Editor
August 22, 2012

A new report from NERA Economic Consulting on behalf of the Manufacturers Alliance for Productivity and Innovation (MAPI) finds that U.S. manufacturers are significantly impacted by the escalation in the volume and cost of compliance with federal regulations. In the report, entitled “Macroeconomic Impacts of Federal Regulation of the Manufacturing Sector,” NERA examined the qualitative and quantitative impact of federal regulations on the U.S. economy as a whole and the manufacturing sector in particular.

Following the report’s release on August 21, Stephen Gold, president and CEO of MAPI, said the report affirmed suspicions he and many manufacturers held about the impact of regulations on growth. “In fact,” said Gold, “I didn’t realize costs are growing as fast as they are.”

Gold said the report illustrates a pressing need for the government to adopt a holistic approach to regulatory impact. Too often, he said, regulations are considered and implemented in a vacuum, without a full understanding of their” layering” in practice and the resulting “distortion.”

“The regulatory system is not subject to the same political or managerial discipline as, for instance, the tax code,” said Gold. “Politicians will say we have to ease taxes in a down economy, but there is no such consideration for these regulations. They are ‘off the books,’ so the speak, and we have to find a way to get them on the books so we can see the overall impact.”

Gold went on to say that United States manufacturers are easily the most dynamic and resilient in the world, citing regulatory impacts, the economic downturn, and stiff global competition. According to the Institute for Supply Management‘s Manufacturing Report on Business, economic activity in the U.S. manufacturing sector had been growing steadily for 34 consecutive months before a slight dip in recent months. “The NERA report shows how much more vibrant the manufacturing sector could be,” said Gold. “Manufacturing is thriving in spite of these regulations, certainly not because of them.”

The report’s executive summary highlighted the following findings:
• Since 1998, growth in the cost of major regulations (defined as those costing more than $100 million) has far exceeded manufacturing sector growth and overall economic growth. In that span, the cumulative inflation-adjusted cost of compliance for major manufacturing-related regulations grew by an annualized rate of 7.6%. Over this same period, annual growth in the physical volume of manufacturing sector output averaged a mere 0.4% while U.S. inflation-adjusted GDP growth averaged 2.2% a year.
• U.S. manufacturers today are subject to an estimated 2,183 unique regulations promulgated between 1981 and April 2012.
• Major regulations could reduce manufacturing output by up to 6.0% over the next decade.
• In 2012 alone, major regulations could reduce the total value of shipments from the manufacturing sector by up to $500 billion in constant 2010 dollars. This is a loss in shipment value equal to 85% of the 2010 pre-tax profits of the entire manufacturing sector.
• In 2012, manufacturing exports will be up to 17% lower than they would be without the estimated burden from major regulations.

NERA estimates that because 95% of regulations are non-major (cost less than $100 million) and therefore not tracked by the federal government and not accounted for in this study, the aggregate burden of these unaccounted regulations could well be as large as the cost of the major regulations.

About the Author

Josh Bond
Contributing Editor

Josh Bond is a contributing editor to Modern. In addition to working on Modern’s annual Casebook and being a member of the Show Daily team, Josh covers lift trucks for the magazine.


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