The Regulatory Blame Game

From: RegBlog

Cary Coglianese

Have  you noticed the pattern? A private company cuts corners on risk control; a terrible disaster occurs; and then politicians and the public blame . . . the U.S. regulatory system.

The  latest example: a Massachusetts drug compounding pharmacy that contaminated vials of steroids and caused hundreds of cases of fungal meningitis, including dozens of deaths. Even while the Food and Drug Administration was still responding to the serious public health threat, the FDA Commissioner had to answer angry questions from members of Congress. Representative Cliff Stearns (R-FL) told Commissioner Margaret Hamburg that the meningitis outbreak “was a complete and utter failure on the part of your agency.”

The  FDA joins a growing club.  Over the last several years, regulators have been singled out after virtually every major disaster. Federal offshore oil regulators were blamed for not preventing the Deepwater Horizon explosion and the resulting Gulf Coast oil spill. Financial regulators were blamed for failing to prevent the economic devastation wrought by the housing collapse and ensuing failures by major financial firms. Safety regulators have been blamed for mine and pipeline explosions and suspected automobile defects.

Alexis de Tocqueville once observed that in America almost every political question eventually turns into a question presented to the courts. If he were writing today, he could properly observe that scarcely a disaster occurs in the United States that does not result in a widespread indictment of its regulatory system.

Of course, in some cases regulators really do fall asleep at the switch. And with the benefit of hindsight, it is always possible to say regulators could have done better.  But it is another thing altogether to say that the U.S. regulatory system has fundamentally broken down. In each disaster, we need to ask “what really did break down,” as Representative Fred Upton (R-MI) asked at a recent hearing on the meningitis outbreak.

Not surprisingly, the answer often depends on political ideology. At the same legislative hearing, Representative Henry Waxman (D-CA) opined that the FDA commissioner was “being picked on by Republicans because you’re with the Obama administration.”

But no matter which party holds the presidency, seldom does investigation lead to the judgment that someone failed. We do not usually see Petraeus-like resignations for poor judgment by the heads of regulatory agencies implicated in disaster.

Rather, we see politicians ultimately conclude that something failed – the system. With the Deepwater Horizon disaster, for example, the culprit was said to be a government organizational chart that fostered too much conflict of interest, placing drilling safety inspectors in the same agency as collectors of oil excise taxes. In the immediate wake of the meningitis outbreak, the FDA has claimed that the problem lay with “fragmented” and “ambiguous” legal authority over compounding pharmacies.

Fortunately, these kinds of structural problems can be fixed. Congress has the ability – and, in the wake of disaster, often the political will – to pass new legislative authority or to break up and reorganize regulatory agencies. But unfortunately, structural change only works when problems truly have structural causes. Sometimes the problem lies with leadership, not laws.

And sometimes the problem can be redressed by neither leadership nor laws. Sometimes the problem is that we simply live in a risky world where accidents do, regrettably, happen.   As much as everyone hopes that reforms can ensure disasters will never occur again, the truth is that short of banning an economic activity outright its risks can never be fully eliminated. We cannot demand gasoline for our cars without understanding that this means some risk of spills or other oil-production accidents.

In addition, regulation always confronts tradeoffs. Oversight and regulatory standards can be tightened – but only at a cost. We might eliminate automobile accident fatalities altogether if drivers were barred from ever exceeding five miles per hour, but surely that would not be an acceptable option for an automobile-dependent society. For much the same reason, a responsible FDA might well face a limit in overseeing drug manufacturing processes. If more stringent oversight means driving some manufacturers out of business or slowing down manufacturing times, then FDA oversight can affect the access to and affordability of valuable medicines – another challenging tradeoff.

The existence of tradeoffs and competing goals means that determining what may be truly broken with the U.S. regulatory system is often harder than it first appears. One thing is clear: we need to put aside unrealistic expectations for what regulation can achieve.  Regulation manages risk; it does not eliminate it altogether. It also is hardly realistic to tighten agencies’ budgets while expecting they will have the resources to find and address all risks of harm from the hundreds of thousands of businesses they oversee.

In the end, responsibility does lie with those businesses. Government can play a vital role, but it can only improve its performance in the wake of disaster if members of the public and their elected and appointed servants make clear-headed appraisals of what truly broke down, why, and what might be done to address root causes in the future.

Cary Coglianese is the Edward B. Shils Professor of Law, Professor of Political Science, and Director of the Penn Program on Regulation at the University of Pennsylvania Law School.  He is the founder of and faculty advisor to RegBlog.  His most recent book is Regulatory Breakdown: The Crisis of Confidence in U.S. Regulation

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