Implications of American Social Regulations for Its Competitiveness
in the Global Economy
89
Implications of American Social Regulations
for Its Competitiveness in the Global Economy
By Chin-Ming Lin∗
Concerns over society’s aggregate well-being initiated a new trend in social
regulations in the United States beginning in the 1960s. These regulations focus on
fundamental aspects of the production process and on its negative externalities so that
nearly every sector of the economy is affected. However, the US is quite distinct from
other countries in terms of regulatory patterns. The American format of regulatory laws,
the process of regulatory policy-making, and the ways in implementing regulations are
more legalistic, and more adversarial than other advanced countries. Legalism in US
social regulations resulted in bigger uncertainties, higher litigation and legal
expenditures, and heavier compliance and opportunity costs, as well as causing firms to
become defensive and alienated. As domestic regulations are increasingly becoming
insufficient to deal with problems arising from globalized production, differences in
American regulatory content and legal implementations from other countries will affect
its competitiveness in the global economy. We argue, in this paper, that the impact of
social regulations on the whole of society is not large, but the impact of higher liability
and legal costs can be more pronounced for particular industries. However, as long as
the higher regulatory costs do not proportionately fall on inputs of production, US
companies will not be at a competitive disadvantage.
∗
Chin-Ming Lin (林欽明), Assistant Professor, Graduate Institute of Southeast Asian Studies,
Tamkang University, Ph.D. in Economics from the University of Wisconsin-Madison,
Specialize in Trade Policy, Economic Development and Industrial Relations.
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Key words: Regulatory Policy, Adversarial Legalism,
Competitiveness, Industrial Policy, Government-business
Cooperation, Social Cost and Benefit, Globalization,
Social Safety Legislation, Comparative Economic
Systems, Corporate Social Responsibility
The Rise of American Social Regulation
The beginning of legislating of health protection for foods and drugs
in the UScan be traced to the Progress Era, while initiatives in basic
regulations on labor relations became prominent in the period of the New
Deal. Furthermore, the surge of federal legislation on human rights,
environmental protection, occupational safety and consumers’ product
protection was around thirty or forty years ago. The prevalent trend of
legalism in individual rights and preferential treatment has not been a
recent phenomenon as well. As Alexis de Tocqueville observed in 1835
that in America important political issues repeatedly were transmuted into
judicial questions and that politics and social life were pervaded by the
vocabulary of law.1
From the end of the 1960’s to the 1970’s, we witnessed a new trend
in American regulations that, as in the Progress Era and the New Deal,
was meant to rebuild and revitalize the role of government in the economy.
This was mainly inspired by the new political economic ideology and new
administrative philosophy, but it was distinctive from the Progressive Era
and the later New Deal. The crucial difference is that, with active
macroeconomic management policies, fluctuations in business cycles
1
Alexis de Tocqueville, Democracy in America, ed. by J. P. Mayer and Max Lerner (Harper &
Row, 1966): 248.
Implications of American Social Regulations for Its Competitiveness
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were not so huge as in the first half of the twentieth century, and thus the
overall economy did not change so much with the transformation of the
post-war economic structures. Furthermore, the initiatives of the new
trends in regulatory policies were not the same as those in previous
periods. The former regulations were concentrated in economic issues,
while the new schemes were mainly social regulations. However, there is
close connection between these two schemes: it was the continuous
concern in the capitalist production process in the former period which
resulted in the rise of interest in another regime of regulations in the later
period.
However, before we proceed to discuss the characteristics of the new
regulatory schemes, let us first clarify what is the distinction between
social regulations and economic regulations. Economic regulations in the
Progressive Era and the New Deal were mainly designed to expand
governmental controls on price and supply conditions of production, the
number of participants in regulated industries and conditions of entering
into these industries. The government adopted relevant responsive
regulatory measures for different periods respectively toward market
inefficiencies due to specific sectors’ characteristics or the fluctuations
induced by market competition. In earlier times various agencies for the
purpose of economic regulations were established, such as the Interstate
Commerce Commission (1887), Antitrust Division of the Justice
Department (1890), the Bureau of Corporations of the Commerce
Department (1906), the Federal Reserve Board (1913), the Federal Trade
Commission (1914), the Federal Power Commission (1920), the
Commodity
Exchange
Authority
(1922),
the
Food
and
Drug
Administration (1931), the Federal Home Loan Bank Board (1932), the
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Federal Deposit Insurance Corporation (1933), the Agricultural
Adjustment
Administration
(1933),
the
Federal
Communications
Commission (1934), the Security and Exchange Commission (1934), the
National Labor Relations Board (1935), the Federal Maritime
Commission (1936), and Civil Aeronautics Board (1938).2
Unlike
economic
regulations,
social
regulations
focus
on
fundamental aspects of the production process and on its negative
externalities. Therefore, social regulations are concerned with the qualities
of goods and services and the side effects of production process that are
threatening human health and even the living environment. Thus, it is not
meant to protect business enterprises, but rather to restrict their activities
on behalf of the public, while it is not meant to promote market
competition or to protect those competitors in the market, but, on the
contrary, to induce additional costs to smaller enterprises for complying
with regulatory restrictions and therefore render it very difficult to survive
in the market. In the 1970s the US Congress initiated many policy
measures to prevent air and water pollution, to control toxic wastes and
chemicals, to prevent occupational accidents and diseases, and to promote
consumer safety. In order for the new regulatory legislation to pass it was
necessary to coordinate with business associations, to mobilize advocacy
groups, and to effectively exploit highly publicized events or relevant
reports. Agencies such as the National Highway Traffic Safety
Administration (1970), Environmental Protection Agency (1970), the
Occupational Safety and Health Administration (1970), and the Consumer
Product Safety Commission (1972) are the best known of the social
regulatory agencies.
2
Marc Allen Eisner, Regulatory Politics in Transition, 2nd ed. (Baltimore and London: The Johns
Hopkins University Press, 2000): 119.
Implications of American Social Regulations for Its Competitiveness
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Nevertheless, we must note that some past policies were regulations,
such as the earlier Food and Drug Administration and the Federal Trade
Commission. All have promoted some social regulatory functions.
However, during the 1960s and the 1970s there were indeed large
expansions in social regulations. The US Congress successfully passed
five consumer protection laws in the Progress Era and eleven more of
such laws in the New Deal. Comparatively, Congress successfully passed
sixty-two such laws in the later period. It is the same in aspects of
occupational safety and working standards: five such laws were passed in
the Progressive Era and the New Deal as against twenty-one in the period
of 1960 to 1978. Similarly, there were seven energy and environmental
protection laws in the Progressive Era and the New Deal while there were
thirty-two more in the later period.3
After the New Deal, government regulation was gradually accepted
by the public. Furthermore, with changes in governmental focus the
regulated became less antagonistic against government policies. Actually,
in many industries, firms’ stability and sustained profitability relied
crucially on the sustainability of these regulatory measures. However, the
relationship between government and economic units became much more
tense and antagonistic with changes in political environment witnessing
the rising of many public-opinion groups. The latter asserted that
government should play a different role and business enterprises should
be less autonomous. Influenced by left-wing mentalities, they believed
that government policies should not only focus on industrial stability or
business extravagance, but should set standards and stringently execute
3
These figures were adopted from David Vogel, “The ‘New’ Social Regulation in Historical and
Comparative Perspective,’ in Thomas K. McCraw, ed. Regulation in Perspective: Historical
Essays (Cambridge, Mass.: Harvard University Press, 1981): 162. It was cited in Eisner,
Regulatory Politics in Transition: 120.
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them with respect to every aspect of the production process. Those social
regulations set up in the 1960s and the 1970s extended governmental
interferences into many proprietary areas of business administration.
Government created many new institutions, and, at the same time, made
many mechanistic innovations in adjusting administrative structures and
promoting integration of sectors’ benefits. Most importantly, huge
manpower resources in natural and social sciences were infused to
delineate policy scope and to design appropriate methods of compliance.
The trend in social regulations changed the trajectories of historical
development. In the past, economic regulatory agencies were mainly
responsible for distributing benefits (such as changes in routes,
frequencies and rates) among a few enterprises in specific industries.
These policies may have harmed consumers or obstructed many new
entrants, but they were welcomed by the regulated because they actually
stimulated industrial stability and raised profitability. And, of course,
there were many complaints that governments abused their authority to
deliver benefits to business enterprises.4 On the contrary, new schemes of
social regulations covering issues across industries and economic sectors
were implemented, such as air and water pollution, defects and dangers in
consumer products, and occupational disasters and diseases that were not
specific to any particular industry. To solve these problems, there must be
a preventive standard applicable to the whole economy, not impinging on
industrial stability and profitability. The transformation in regulatory
focuses, along with the compliance costs, has put the regulators and the
regulated in an adversarial position, as opposed to the past.
4
See, e.g., Samuel P. Huntington, “The Erasmus of the ICC,” Yale Law Journal, 61 (April 1955) :
467-509.
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
95
Adversarial Legalism
In the past few decades, we have heard voices of deregulation in
many political arenas. Some economic regulations that restricted
competition such as those in banking, maritime and air transportations,
telecommunications and retail sales were discarded. But, almost no
politician wished to discard any social regulation because most of these
measures were deemed necessary for rectifying negative externalities.
However, it is undeniable that social regulations were always in the
middle of political conflicts, partly because of their incapability to
function perfectly as social protection. Furthermore, the costs of
compliance were always large and the procedures were tedious.
In the United States, due to political confrontations, the system of
social regulations, either in overcoming social problems or most of the
regulatory standards, is not so different from those of other advanced
democratic countries. Nevertheless, the US is quite distinct from other
countries in terms of regulatory patterns. The American format of
regulatory laws, the process of regulatory policy-making, and the ways of
implementing regulations are more legalistic, and more adversarial, and
has been coined as “adversarial legalism” by Robert Kagan.5 Adversarial
legalism may not necessarily render the American system worse than
other industrial countries, but it has surely resulted in higher regulatory
costs, as well as less efficiency and less flexibility, which hindered
necessary cooperation between government and businesses in response to
5
Cf. Robert A. Kagan, Adversarial Legalism: The American Way of Law (Cambridge, Mass.:
Harvard University Press, 2001); see also Robert A. Kagan and Lee Axelrad, “Adversarial
Legalism: An International Perspective,” in Pietro S. Nivola, ed., Comparative Disadvantages:
Social Regulations and the Global Economy (Washington, D.C.: Brookings Institution):
146-202.
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public demand for protection.6
We will first look at the form of American regulatory laws. Edward
Rubin found that the statutes and regulations issued by the US Federal
Reserve
Board
on
bank
safety
and
soundness
fill
numerous
three-inch-thick binders, while Germany’s comparable statute and the
Bundesbank’s implementing regulations are bound in a pamphlet that is
less than 100 pages in length. Part of Rubin’s answer is that Germany’s
bank regulatory officials are career employees, subject to more extensive
training than American counterparts, so there is no need to restrain the
former with comprehensive rules for them to make independent and
reasonable judgments.7
Germany’s environmental regulations are implemented by state
(lander) and municipal officials and are, perhaps, the most detailed of any
nation’s except for the US. Still, they are much less prescriptive and
constraining than American rules.8 Besides, the intention of Gemany’s
detailed regulations is different. The detailedness of the US laws and
regulations was the result of distrust of regulatory institutions by the
government and advocacy groups; the ruling was designed to prevent the
agency’s “capture” by the regulated firms and, furthermore, to facilitate
6
7
8
Kagan, Adversarial Legalism: 181-182.
Edward L. Rubin, “Discretion and Its Discontents,” Chicago-Kent Law Review, 72 (1997): 1299.
For example, a study by John Dwyer and coauthors compared experiences of controlling air
pollution in Ford Motor Company’s assembly plants in Germany and the US They found that
both countries’ regulations prescribed similar emissions levels for the pollutants produced
during the vehicle painting process, and both required use of the best available control
technology. The EPA’s regulations, however, prescribed specific emission levels for each of the
three different coating processes, while the German regulations called for a single overall
emission limit for the plant, which gives manufacturers more flexibility in adjusting production
runs and processes, and reduces monitoring and reporting requirements. See John Dwyer,
Richard Brooks and Alan Marco, “The Air Pollution Permit Process for US and German
Automobile Assembly Plants,” in Robert A. Kagan and Lee Axelrad, eds., Regulatory
Encounters: Multinational Corporations and American Adversarial Legalism (Berkeley:
University of California Press, 2000).
Implications of American Social Regulations for Its Competitiveness
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judicial reviews that will check unwarranted administrative decisions. In
Germany, in contrast, the detailedness of environmental regulations was
meant mainly to give a guidance for state and municipal governments in
implementing federal laws and also to protect regulatory officials from
judicial interference. When plaintiffs in German court argued that
regulatory activities conflicted with their individual rights, the regulatory
agencies could point at detailed rules and reply that they were only
following the letter of the law. Moreover, the detail in Germany’s air
pollution regulations has legal characteristics of “administrative
guidance” rather than a binding law. Therefore, the regulators can
lawfully depart from them in individual decisions, based on their duty to
adjust regulatory requirements to particular circumstances and economic
conditions.9
Unique to American environmental regulations is the strict
designations by the Congress on promulgation schedules in regulatory
legislations and specific dates of achieving pollution prevention goals,
which always resulted in failure to fulfill deadline requirement and,
therefore, in subsequent accusations by environmental groups asking for
strict compliance.10 Prescriptive and deadline-laden statutes, moreover,
lead to prescriptive and deadline-laden regulations and, for individual
regulated firms, to permits, remediation plans, checklists for inspectors,
and reporting requirements that far exceed in specificity those imposed by
other countries.11
9
R. Daniel Kelemen, “Regulatory Federalism: The European Union in Comparative Perspective,”
Ph.D. dissertation, Stanford University (1998),
10
Kagan, Adversarial Legalism: 188.
11
Robert A. Kagan, “The Consequences of Adversarial Legalism,” in Robert A. Kagan and Lee
Axelrad, eds., Regulatory Encounters: Multinational Corporations and American Adversarial
Legalism (Berkeley: University of California Press, 2000).
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Tamkang Journal of International Affairs
We next look at the regulatory policymaking process. In the US, any
political dispute is subject to judicial limitation so that regulated
enterprises or regulatory supporting advocacy groups, when they do not
like specific regulatory measures, can use these to fend off regulatory
policy decisions. Thus, there are some special legal formats in the US
regulatory policy decision-making process. It is open to interest-group
participations and, therefore, is adversarial and susceptible to judicial
reviews. In the US legal and judicial decision-making process, draft
legislatures have to be published first, and then public hearings could be
held where advocacy groups, business organizations and other interested
agencies can raise their concerns and demands. The regulators and the
regulated, in many circumstances, have to negotiate in private and, in
many more circumstances, this will result in dangerous political
consequences. Government asks the regulatory decision-makers to
provide scientific, technical and economically effective evidence to
support the chosen standards. The regulatory measures are always
challenged in the courts where judges criticize the fairness of
decision-making process and raise their objections to legal words.
Moreover, many responses by regulatory agencies to dispute by industrial
and advocacy groups are often criticized as well.
A study by David Vogel points out that the regulatory
decision-making processes in England are less formal and less challenged
judicially. The regulatory officials issue environmental prevention
guidelines after consultation privately with each other, the representatives
appointed by affected firms and associations, and the “responsible”
environmental groups. Judicial reviews on regulatory decision-making are
infrequent, and, thus, lawyers play insignificant roles in decision-making
Implications of American Social Regulations for Its Competitiveness
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99
process.12 The same contrast emerges between Germany and the US with
respect to environmental regulatory decision-making processes.
13
.
Furthermore, studies on occupational safety regulations in the US, France,
Germany, the UK and Japan, 14 and on regulations on chemical
carcinogens in pesticides, food additives and workplaces in Germany,
France, the UK and the US, also confirm more stringent legal
requirements and less attention to bureaucratic or economic reality in the
US regulatory decision-making process. Policy implementations, they
pointed out, were often criticized by other government agencies and the
warring private interest groups, all engaged in legal, scientific and
economic explanations from their own narrow perspectives. We found in
the study by Brickman and others 15 that there is no confrontations
between legislative and executive government sectors in European
countries where, with traditions of governance by experts, apolitical
public agencies and business groups, the “pressure for rigorous procedural
and judicial controls on the bureaucracy” have been reduced. 16 In
consequence, “A confidential process of consultation and accommodation
permits government officials to mediate among conflicting private
interests. As a result, regulators are able to make the necessary trade-offs
and compromises without presenting reasoned public justifications or
drawing open political fire.”
As Vogel pointed out, while British enterprises were permitted and
12
13
14
15
16
David Vogel, National Styles of Regulation: Environmental Policy in Great Britain and the
United States (Ithaca, NY: Cornell University Press, 1986).
Susan Rose-Ackerman, Controlling Environmental Policy: The Limits of Public Law in
Germany and the United States (New Haven: Yale University Press, 1995).
Joseph L. Badaracco, Loading the Dice: A Five Country Study of Vinyl Chloride Regulation
(Boston: Harvard Business School Press, 1985).
Ronald Brickman, Sheila Jasanoff and Thomas Ilgen, Controlling Chemicals: The Politics of
Regulation in Europe and the United States (Ithaca, NY: Cornell University Press, 1985).
Brickman, Jasanoff and Ilgen, Controlling Chemical: 305.
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assured to participate in regulatory decision making, consultations
between business executives and regulatory officials were often
questioned politically: Businesses would always have to manage to be
assertive and “the importance given to economic considerations is in large
measure dependent upon the lobbying and litigation skills to business.”
Economic concerns are addressed through formal cost-benefit analyses or
technical feasibility studies, but, because of some unavoidable
deficiencies in methods, either the regulated may feel the regulation is too
stringent or the regulation advocacy organization may think it is too
lenient. These all created grounds for appeal to the courts.
Lastly, we may want to look at the implementation aspect of
regulations. Some US regulatory agencies pursue a flexible or sometimes
accommodative enforcement style, emphasizing remedial orders more
than punishment.17 Some regulatory agencies are too lenient or, due to
shortage of staff or too much burden, may not want to or be unable to
punish even in situations of obvious and significant regulatory violations.
The regulated sometimes in political occasions would fight back the
enforcement of regulations.18 Nevertheless, US regulatory officials are
often under political pressure to pursue legal methods and sue those
involved in regulatory violations. Thus, the regulators often measure their
performance by the number of accusations and the amount of fines
recovered. The Environmental Protection Agency of the federal
government often checks on records of accusations by state environmental
regulatory agencies to see if there is failure to seek legal sanctions against
17
18
Robert A. Kagan, “Regulatory Enforcement,” in David Rosenblum and Richard Schwartz, eds.,
Handbook of Regulation and Administrative Law (New York: Marcel Dekker, 1993).
Kagan, Adversarial Legalism: 191.
Implications of American Social Regulations for Its Competitiveness
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violators. 19 Several cross-national studies also found that, in many
regulatory areas, the US was far more legalistic and deterrence-oriented in
enforcing many regulatory measures than other advanced countries.
Comparatively, regulatory officials of other democratic countries are more
consistently employing a problem-solving, cooperation-seeking style in
cases of regulatory violations.20
The much more stricter regulatory enforcement style was criticized by
some social-legal studies, calling it formalistic or “by the book”.21 No
other country authorizes or imposes such weighty criminal penalties for
violations of regulatory laws. In 1988 the Congress raised the penalty for
inside-trading to one million dollars for individuals and to two and half
million dollars for organizations. It also doubled prison terms for violations
of any securities law provisions from five to ten years.22 At the end of the
1980s and the beginning of the 1990s, Congress upgraded most criminal
offenses in environmental laws from misdemeanors to felonies, thereby,
increasing the potential prison sentences. According Federal or California
state laws, firms that violated water pollution prevention laws that
“knowingly endanger another person” could be fined by courts to the
maximum penalty of one million dollars while violating individuals could
be fined two and half million dollars, along with maximum prison terms
19
20
21
22
Jonathan Adler, “Bean Counting for a Better Earth: Environmental Enforcement at the EPA,” Regulation
(Spring, 1998): 40-43.
Steven Kelman, Regulating America, Regulating Sweden: A Comparative Study of Occupational Safety
and Health Policy (Cambridge, Mass.: The MIT Press, 1981); Graham Wilson, The Politics of Safety
and Health (Oxford: Clerendon Press, 1985).
Eugene Bardach and Robert A. Kagan, Going by the Book: The Problem of Regulatory
Unreasonableness (Philadelphia: Temple University Press, 1982); Lee Axelrad, “Investigation and
Remediation of Contaminated Manufacturing Sites in the United States, the United Kingdom, and the
Netherlands,” in Robert A. Kagan and Lee Axelrad, eds., Regulatory Encounters: Multinational
Corporations and Adversarial Legalism (Berkeley: University of California Press, 2000).
Harvey Pitt and Karen Shapiro, “Securities Regulation by Enforcement: A Look Ahead at the Next
Decade,” Yale Journal on Regulation, 7 (Winter 1990).
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of fifteen years.23
American laws also provide more heavier civil penalties to
regulatory violations than other countries. For Federal Clean Air Act and
the Toxic Substance Control Act, the maximum penalties to consecutive
violations are authorized up to $25,000 per day. The EPA can impose
administrative penalties equal to the financial “benefit” the violators
gained. Some Federal environmental statutes require violators to pay for
the damage to natural resources by unauthorized pollutions. These
encouraged environmental officials to act like trial lawyers seeking the
largest possible damage calculations.24 In 1989 the Exxon Valdez went
aground in Prince William Sound, Alaska and spilled eleven million
gallons of oil in the wildlife-rich waters. 25 Exxon Corporation, after
spending two billion dollars in cleaning the leakage, pled guilty to
criminal charges and was fined $125 million. Furthermore, the Alaskan
state government and Federal government respectively also filed civil
accusations against Exxon for damaging the environment which
culminated in a settlement of close to one billion dollars by Exxon.26 At
the same time, a number of lawyers who acquired thousands of signatures
by fishermen, Indian tribes and other private organizations who claimed
to be harmed by the leakage also filed suit in Federal court and gained
five billion dollars of remediation.
Exxon’s
simultaneous
exposure
to
criminal
prosecution,
governmental civil penalties, and private lawsuits for damages from the
23
24
25
26
33 U.S.C. §1319(c)(d); Cal. Water Code §§13385-13386.
John Privatera, “Using CERCLA’s Natural Resource Damage Provision to Focus and Organize
a State Environmental Penalty Case,” National Environmental Enforcement Journal (March
1992).
Al Davidson, In the Wake of the Exxon Valdez (San Francisco: Sierra Club Books).
“Judge Endorses $1 Billion Exxon Valdez Settlement,” Washington Post (October 9, 1991): A4.
Implications of American Social Regulations for Its Competitiveness
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same accident revealed characteristics of the US regulatory laws: the
uniqueness in encouraging private enforcement of public law. Legislation
by the US Congress often encourage enterprise lawyers to act as “private
attorneys general.” Thus, for example, the plaintiffs in Federal antitrust
laws could get “treble damage” awards if they can prove in court a
violation. According to the Federal Truth-in-Lending Act, the borrowers
could sue the lenders for violating the complicated disclosure requirement
in the laws. To encourage suits, the Federal law provides that the plaintiffs
would receive a $100 minimum award, regardless of actual losses, plus
their attorneys’ fees. The Act also enabled attorneys to bundle thousands
of bank customers together in a class action, “raising the prospect of
enormous damages suits for minor violations of the statute.”27
Social and Economic Costs of Legalistic Regulations
As revealed by several studies, compared to more cooperative
regulatory laws in other countries, legalism in US social regulations
resulted in bigger uncertainties, higher litigation and lawyer expenditures,
and heavier compliance and opportunity costs, causing firms to become
defensive and alienated. These costs are borne by society as a whole, not
merely by regulated firms.
Many multinational enterprises thought that US regulatory policies
are more legalistically unpredictable than those of the Western Europe or
Japan. The uncertainties stems from several features of the US regulatory
regimes. Institutional fragmentation results in an overlap of authorities
and coordinating failures in many local, state and Federal regulatory units
which could be controlled by different parties with diversified preferences
27
Edward L. Rubin, “Legislative Methodology: Some Lessons from the Truth-in-Lending Act,”
Georgetown Law Review, 80 (1991): 233.
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in regulations. Due to the political and legal openness of the American
government, business groups and advocacy organizations frequently
battle for regulatory changes in agencies, courts and legislatures,
rendering American regulatory laws more volatile. The ever-present
prospect of legal and political challenges means that the US government,
compared to counterparts in other countries, often demand more specific
scientific support in permit applications, demands for rule changes or new
regulations. This also makes it less clear when a decision can be made and
whether the studies and certifications provided will be regarded as legally
sufficient.28
To comply with American regulations, many enterprises also must
pay for more legal fees. Officials in a Japanese metal-producing company
pointed out that the legal consulting expenditure paid by its subsidiary
company in the U.S. is higher than the gross expenditure by the mother
corporation and its European subsidiaries. Several other multinational
companies had similar experiences such that their subsidiaries in the U.S.
consulted lawyers more often and longer on a wider range of matters,
because, compared to other advanced democratic countries, the American
laws are usually more complicated, changeable, and difficult to master;
the legal sanctions from being wrong are generally much higher; litigation
is more common; and litigation in the United States is more expensive.29
The requirements of American regulatory policies on investigation
reports, record-keeping, testing, employee education and certifications are
usually more extensive and comprehensive. Thus, besides complying with
28
29
Kagan, Adversarial Legalism: 198-199; Kagan and Axelrad, “Adversarial Legalism:
International Perspective,”: 165-167.
Laura Beth Nielson, “Paying Workers or Paying Lawyers: Employee Termination Practices in
the United States and Canada,” Law & Policy, 21 (July 1999): 247-282; Charles Ruhlin, “Credit
Card Collection and the Law: Germany and the United States,” in Kagan and Axelrad, eds.,
Regulatory Encounters; Kagan, “The Consequences of Adversarial Legalism.”
Implications of American Social Regulations for Its Competitiveness
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105
actual regulatory standards, regulated firms in the US must also spend
more to prove that they are complying.30 One company, at the beginning
of the 1990s, reported to the regulatory agencies in the US, the UK and
Netherlands that the underground tanks and pipes in those countries had
deteriorated and solvents had leaked. Comparatively, the American
regulatory authority demanded more detailed analyses, more paperwork
and more expensive reports than its counterparts in other countries.
Officials of the company pointed out that the documents they provided to
the US regulatory agency would fill a four-drawer filing cabinet,
compared to the less than half of a single file drawer of documentation
submitted to regulatory agencies of other countries. As estimated by the
company, to comply with American regulations the designing and clearing
plans in two sites in the United States added $8 to $10 million out of total
costs per site of an estimated $22 million, whereas the “extra” costs in
investigating and clearing were negligible.31
Regulatory permitting systems are designed to slow the rush to
development and technological change, pressing businesses to reconsider
the negative effects before taking further steps. However, this kind of
prior regulatory review may also cause a large opportunity cost to society.
Whenever a new and less harmful pesticide is stalled by extra checkup, it
means that the existing and more harmful pesticides could remain for a
little longer. European Union’s regulatory procedure for prior reviews of
genetically engineered products and new chemical substances are slower
and impose longer delays on useful products than the comparable US
30
31
Dwyer, Brooks and Marco, “The Air Pollution Permit Process for U.S. and German
Automobile Assembly Plants”; Kagan, “The Consequences of Adversarial Legalism.”
Axelrad, “Investigation and Remediation of Contaminated Manufacturing Sites in the
United States, the United Kingdom, and the Netherlands.”
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systems.32 Nevertheless, for most products and manufacturing processes,
the American regulatory system, compared to countries of the European
Union, usually caused longer delays and larger opportunity costs.
American opponents of new projects generally have more opportunities to
challenge regulatory permits in the courts and, with litigation at a
deliberately crawling pace, typically this results in substantial opportunity
costs. The greater prospects of judicial reviews seem to show that the U.S.
officials are more cautious and also more dependent on judicial reviews to
control development projects. However, when we compare the difference
between the U.S. and other countries, it is actually very significant. For
example, when Ford applied for air pollution permits for its two plants in
Germany, the time from application to approval in Germany took five and
seven months, respectively; the same permit application for its plants in
Minnesota and New Jersey, on the other hand, took the company more
than four years.33
Another of regulatory legalism’s more intangible costs is its
corrosive effects on personal and institutional relationships. Exchange and
cooperation
of
information
necessary
for
effective
regulatory
enforcements are often reduced due to adversarial postures between the
regulatory investigators and the regulated enterprises.34 One of the most
heralded case is EPA’s “Project XL”, announced in 1995 in a Clinton
administration document, Reinventing Environmental Regulation. It
authorized state regulatory agencies to reach agreement with the regulated
32
33
34
See Martine Kraus, “Licensing Biologics in Europe and the United States,” in Kagan and
Axelrad, eds., Regulatory Encounters; Loro Johnson, Tatsuya Fujie and Marius Aalders, “New
Chemical Notifications Laws in Japan, the United States, and the European Union,” in Kagan
and Axelrad, eds., Regulatory Encounters.
Dwyer, Brooks and Marco, “The Air Pollution Permit Process for U.S. and German Automobile
Assembly Plants.”
Bardach and Kagan, Going by the Book.
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
107
businesses under which, in return for relief from highly prescriptive
regulatory requirements, the enterprises institute performance-oriented
pollution reduction methods that promise “superior” environmental
benefits. Each enterprise had to publicize its actual records of
environmental performance and update goals in light of experiences.35
However, the progress of agreements in Project XL was unbearably slow
that although EP set an initial goal of fifty projects, by the end of 1997
only seven had been finally approved, with twelve under development.
The reason is the shadow of adversarial legalism hang there and the
regulatory agencies must guard against the charge that they are casting
aside the law to accommodate a polluter. Each of the legal waivers for
particular prescriptive regulations must be negotiated arduously.
Negotiations between EPA and 3M broke down partly because EPA could
not guarantee that, once the Project XL requirement was fulfilled, 3M
would be free from civil litigations for technical violations of present
regulations. 36 Furthermore, environmental groups would never easily
give up the power they gained from prescriptive rules and rights to litigate
and, thus, they nearly scuttled the agreement between EPA and Intel.37
What are the costs of regulations to the US on the whole? According
to one estimate, the US spends over $230 billion a year, or around 2% of
GDP, on legal actions with respect to tort laws, far more than any other
advanced economy. But over half of the compensation does not go
35
36
37
On Project XL and other related cooperative regulatory schemes cf. Edward Weber, Pluralism
by the Rules: Conflict and Cooperation in Environmental Regulation (Washington, D.C.:
Georgetown University Press, 1998)
Michael Dorf and Charles Sabel, “A Constitution of Democratic Experimentalism,” Columbia
Law Review, 98 (1998): 384-385.
Jody Freeman, “Collaborative Governance in the Administrative State,” UCLA Law Review, 45
(1997): 61-66, 73.
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victims of negligence, but are eaten up by administrative costs. 38
Furthermore, the American tax laws and their attendant regulations run to
60,000 pages. The annual cost of tax compliance is estimated at $115
billion.39 We could not find comparable figures for Europe, but it is
without doubt that the European economy is hindered by various levels of
regulations, as evidenced by recent call for regulatory reform from many
people. However, even though companies in the US may face lower
administrative (legal) burdens, they do face substantial costs when
working to avoid legal litigation procedures.40
Before we ponder upon the implications of social regulations for
American competitiveness, it is worth noting that resource wasting from
legal expenditures and wherewith the uncertainties caused by regulatory
policies should not be ignored. The United States provides an enormous
market for both American and foreign business; those businesses can not
afford to abandon the United States even if its regulatory system is
especially costly. But those “extra” costs, even though they may not harm
the dynamism of the whole economy, are in fact a large burden for
individual firms and a depletion of wealth for the whole society. Impacts
on the economy by regulatory waste and inefficiency, just like the waste
and inefficiency from military purchases and highway building by the
government, are undesirable as well.
It is often argued, but not mentioned at the above, that differential
regulations between the US and other less-developed economies such as
Mexico and China will have deleterious effects. More lenient regulations,
38
39
40
"George Bush's Second Term: The Revolution Comes Home," Economist, January 13, 2005.
Ibid.
See, e.g., ETUC (European Trade Union Confederation), “Note from the ETUC on Regulation,
Competition and Innovation in Europe," A note from the ETUC regarding the meeting of
Finance Ministers (http://www.etuc.org/a/566).
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
109
especially on environment and labor standards, may have rendered many
developing countries a comparative advantage in international trade
against the US and other advanced countries. On the other hand, there is
also growing concern by policy-makers and private entities in developing
countries about the proliferation and strengthening of standards and
technical regulations, which is impacting their competitiveness. For the
sake of not to involve in those dispute and to complicate our discussions,
we leave such issues to other more appropriate places.41
The United States and Global Economy
For the past half century the United States was increasingly
integrated with the global economy. In 1950 imports and exports, when
combined, constitute a ratio of 8.1% in gross domestic product (GDP). In
the next two decades the ratio was rising slowly to 10.9% in 1970. But
thereafter the speed of globalization rose very quickly for the past two to
three decades (see Table 1). In 2003 imports and exports, when combined,
constituted a ratio of 23.0% of GDP, with value of over $2.5 trillion.42
Gross value of global trade reached $6.5 trillion in 2002, wherein the U.S.
exports were responsible for 11.0% and imports for 18.5%. It is indeed a
very active player in international economy.43 Most of the world trade is
conducted among advanced countries with similar wage structures, or
among subsidiaries in different regions of the world within the same firm
41
42
43
The World Bank has increased its involvement in this field recently. Confer its related web
pages for detailed portfolio of projects.
Calculated from Christipher L. Bach, “U.S. International Transactions: 2003,” Survey of
Current Business, 84 (April 2004), Table 1
(http://www.bea.gov/bea/ARTICLES/2004/04April/0404ITA.pdf).
Calculated from trade statistics published by the WTO. Cf. its webpage on “International Trade
Statistics”
(http://www.wto.org/english/res_e/statis_e/its2003_e/its03_bysubject_e.htm#geograph
ical_regions).
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(intra-firm trade). While there are examples of industries devastated by
international trade (e.g., textile), the image of U.S. workers being
displaced en masse by sweatshop workers in developing countries is a
wholly unfounded assertion.
Table 1 Openness of U.S. Economy (in current price, $billion)
Total trade
GDP
Trade/GDP
(%)
1960
48.4
526.4
9.2
1970
122.7
1,038.5
11.8
1980
563.1
2,789.5
20.2
1990
1,151.3
5,803.1
19.8
2003
2,527.6
10,987.9
23.0
Source: Calculated using data from the Bureau of Economic Analysis, U.S.
Department of Commerce (http://www.bea.gov/).
However, the threat brought about by globalization is real. After a
period of sustained growth in wage equity (1947-1973), the wages of U.S.
non-farm workers entered a period of stagnation and decline (see Figure
1). Real wages (in 1982 dollars) fell from $8.63 per hour in 1973 to $7.46
per hour in the 1990s. Decreasing real wages, along with a long-term
trend of falling employee tenure, suggest greater employment insecurity.
In view of the declining unionization levels44 and a contingent workforce
of over 35 million, many people feel the threat of employment insecurity
especially in an epoch of lean production and global market.45 Many
countries’ governments, viewed from the pressure of international
competition on domestic markets, are increasingly feeling less effective at
protecting their people from the impact of global markets. Every
44
45
At present the unionization ratio in workforce of non-agricultural private sectors is below 10%.
For wage figures cf. Eisner, Regulatory Politics in Transition, p. 202. And on the impact of
globalization and lean production cf. Bennett Harrison, Lean and Mean: The Changing
Landscape of Corporate Power in the Age of Flexibility (New York: Basic Books, 1994).
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
111
government is increasingly finding it difficult to extract wealth from
corporations and limit their mobility given the dearth of policy tools. As
William Greider notes, ”The nation state faces a crisis of relevance. What
remains of its purpose and power if authority over domestic social
standards is yielded to disinterested market forces? If governments are
reduced to bidding for the favors of multinational enterprises, what basis
10
9
8
7
6
5
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
Real wage ($/hour)
will citizens have for determining their own destinies?”46
Year
Figure 1.
Real Hourly Wages* of Production Workers
* In 1983 dollars.
Source: Calculated using data from the Bureau of Labor Statistics, U.S.
Department of Labor (http://data.bls.gov/).
These are significant questions for those who engage in regulatory
design. Regulatory policy is a means of shaping the effect of economic
forces, preserving or promoting common political values, and forcing
representation and accountability. And growing international integration
46
William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (New York:
Simon & Schuster, 1997): 334.
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Tamkang Journal of International Affairs
will render each country’s regulatory measures less effective and will
force a search for resolutions. Many of the issues raised above are worth
pondering. First of all, many of the problems conventionally concerned by
regulators, such as safety and health of products and environmental
impact of productive activities, are difficult to address when businesses
function outside country borders. Although American consumers will not
be directly impacted by occupational safety and health records of other
country’s enterprises, regulations are promoted, nevertheless, on the basis
of a commitment that corporations should assume responsibility for the
welfare of their workers. This commitment is not supposed to be obviated
by the fact that the workers in turmoil are in Mexico City instead of
Milwaukee. With regard to environmental protection, sustainability,
biodiversity, acid rain, and global warming, these are all issues that are
affected by production regardless of where they are located. These create
trans-border externalities that are difficult to control with individual
country’s regulatory policies or institutions.
Some countries may want to circumscribe the limitations of domestic
regulatory policies by the infusing of trade policies, which results in
second problem. If regulatory policies were assisted by trade policies,
then the goals of regulatory policies will impinge on wider goals of
national income and employment. Industrial and labor associations used
to promote government policies to protect their members, but now they
are using trade policies to reach the goals of regulations. The use of
regulations to affect the behavior of producers in other nations comes into
direct conflict with the national commitment to free trade and the rules of
the World Trade Organization. With respect to regulations, the restriction
of imports of some products with specific additives, for example, was
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
113
designed to comply with the rulings of the Consumer Product Safety
Commission, avoiding such things as “social dumping” by prohibiting the
sale of hazardous toy. However, in view of trade system which is pursuing
liberalization, such behavior is regarded as non-tariff barrier succumbing
to pressures from domestic interest groups.
The two anomalies mentioned above reveal the insufficiency of
domestic regulations in dealing with problems arising from globalized
production. And from discussions of the last section, we realized that the
various costs imbued in stringent enforcement of regulations become a
heavy burden for American regulatory units. Thus, we may want to ask if
increasing international economic integration will offset the effects of
American social regulations that were meant to encourage businesses to
be conscious of and responsible for social development, and, therefore,
affect American competitiveness in the global economy.
Implications of Social Regulations to American Competitiveness
We learned from the above that the compliance costs to American
enterprises of social regulations are very large. However, it is hard to
discern, from the micro level, if the United States is overall in an inferior
position compared to other advanced countries with respect to the
economy as a whole. Nevertheless, we are sure that, along with civil
liability-related costs, the United States is at the high end of the cost
spectrum for regulatory implementations. However, we may not want to
think too hard about this issue, but rather to focus on how badly the
American economy was affected by social regulatory measures, especially
in respect of global markets. What concerns us here is that, in order to
fulfill requirements of social regulations, American producers will face
steep increases in costs that offset advantages in other aspects.
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Trade performance is mainly determined by the relationship between
a country’s saving and investment. If domestic saving is insufficient for
investment demands, then foreign savings would be needed. The rise in
foreign investment will, on one hand, increase domestic production which
in turn needs more input from abroad, and, on the other hand, raise
domestic consumption demand caused by rising income, which also needs
more imports to fill the shortage of domestic production or to satisfy
diversified consumer demands. Thus, there should be no evidence that
regulatory proceedings affect overall saving and investment, so long-run
as aggregate trade flows have little to do with the issues of legal processes.
Of course, it is undeniable that legalistic regulations can and do affect the
trade performance of individual firms or even industries. This might lead
to aggregate trade effects in the very short run. Such effects, however, are
soon canceled out by adjustments in exchange rates.
A more relevant matter is whether differences in regulatory content
and legal implementation affect domestic living standards. This is what
many people mean by competitiveness. In other words, how well does a
nation live when its trade is balanced? Other things being equal, it is
better to balance trade with a higher exchange rate than with a lower one,
because a stronger dollar allows one to purchase imports more cheaply.47
However, even with a higher exchange rate, we still can not ignore the
costly litigations involved in social regulations and the rising enforcement
costs thereof. If, with reasonable estimation, the U.S. legalistic regulatory
system has imposed an additional “tax” of about 4 percent to 5 percent of
47
This is not meant to cut into the debate on optimal exchange rate. Of course, with a higher
nominal exchange rate, i.e. a devalued dollar, it seems more palpable for the US to attain current
trade balance. But a higher purchasing power for the Americans, i.e. a higher real exchange rate,
appears to be more desirable for improving welfare.
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
115
GDP,48 does it mean that given the United States having fixed its legal
system, or carved its costs down to some levels similar to those in other
countries—U.S. living standards would rise by 4 or 5 percent? It is not
likely. First, other countries spend money on compensating victims, too,
though they rely on government compensation mechanisms. Second,
other societies, too, spend money on lawyers. Legal expenditure buy some
social benefits. Viewed from the point of equilibrium, once a country has
made a law, it can have some deterrent effects even though the law is not
strictly enforced. So it is better than no laws.49
It is not easy to do cost-benefit analysis on social regulations. Even
though we could accurately estimate the costs private businesses spend on
complying with the rules and other relevant legal expenditure, it is
difficult to objectively estimate the social benefits from the regulations.
Now suppose, as we argued in the above, the adversarial legalism is so
prevalent that the United States only receives fifty cents of social benefits
48
49
Studies on the 1990s estimate that the country spends approximately $100 billion on lawyers
each year, or about 1.5 percent of GDP. Cf. Richard H. Sander, “Elevating the Debate on
Lawyers and Economic Growth,” Law and Social Inquiry, 17 (Fall 1992), p. 665. Furthermore,
if the Tillinghast estimates for 1989 are more or less correct, then the U.S. liability system has
imposed an additional “tax” of about $117 billion annually, or approximately 2.6 percent of
GDP; cf. David R. Tillinghast, “Post-Acquisition Restructuring of Foreign-Owned U.S.
Corporate Groups,” Bulletin for International Fiscal Documentation, 45 (July-August 1991):
347-355. If compensations for victims and their attorneys but not counting compliance costs
imposed by government regulations are included, the United States could have spent a total of
3.5 percent of GDP. But the total figure could be closer to 4 percent or 5 percent, because the
above estimates do not count the time that business people must divert from their regular
activities to legal problems.
See Robert D. Cooter, “Law from Order: Economic Development and the Jurisprudence of
Social Norms,” in Mancur Olson and Satu Kähkönen, eds., A Not-So-Dismal Science: A
Broader View of Economies and Societies (Oxford: Oxford University Press, 2000): 228-244.
He raised an example. When the government of Berkeley, California issued an order to require
owners of pets to clean the roads polluted by their pets (the “pooper-scooper” law), people
became less tolerant toward those who spoil their dogs because, after all, it is easier to ask
others to “abide by the law,” than to say “don’t be impolite.” Afterwards, most pet owners did
their duty to take care of the wastage of dogs and the roads became much more cleaner (p. 242).
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for every dollar of liability bills,50 this would imply, from calculations in
the above, that for gross costs to the economy of 3.5 percent or 4 percent,
the United States has net social costs of about 2 percent of GDP (or about
$50 a person). That is, the country would be better off as a society by that
per-capita amount, if it did not have this burden. And this would be true
regardless of whether or not other countries’ liability costs and benefits
are better balanced.
It should be noted that as far as regulations are concerned, we can
not ignore the deadweight loss involved.51 There are good as well as bad
regulations. Specifically, the interaction effects of some regulation may
exacerbate the deadweight loss of other regulations. The classical example
of this is a tax on two complementary goods. And in other cases, the
effects may cancel out. A classical example of this is the polluting
monopolist: regulations designed to increase monopoly production offset
regulations designed to reduce pollution. So it is not realistic to simply
add the separately calculated effects of different regulations. But, it
appears very difficult to come up with anything that can work around this
problem.
Thus, viewed from the average value, the impact of social
regulations on the whole of society would not be large, but the impact of
higher liability and legal costs can be more pronounced for particular
industries. Here the key question is whether the higher costs fall on inputs
or on product design. Input costs might be higher for certain US industries
because of various regulations or liability-related costs. And regardless of
50
This seems an ad hoc assertion, but from the above-mentioned estimate that over half of the regulatory
compliance compensation are eaten up by administrative costs, it is reasonable to assume that net benefit to the
economy is at most half of the total spending. See note 38.
51
I would like to thank an anomalous referee for point out this.
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
117
whether the higher costs are offset by social benefits, they hurt US exports
abroad, while also making it easier for foreigners to sell their goods in
America.52 However, in the case where the legal costs fall on product
design, foreigners must meet US standards, whether imposed by
regulation or by liability suits, and thus American firms face no
disadvantage. As for US exports, if American firms are able to
differentiate their products for the home and for foreign markets (rightand left-side drive on automobiles, for instance), then the variations in
product standards should make no significant difference.
There are two important qualifications to these results, however. First,
if it costs US firms money to make different product designs, whether
because of higher R&D expenses or other development costs, then the
differences in law that lead to variations in design do put US exports at a
disadvantage (unless foreign firms seeking to export their design to the
U.S. market suffer corresponding costs). The second, and perhaps the
potentially more important, qualification is that the US legal process may
create uncertainties that stifle innovation, thereby harming exports,
reducing the US equilibrium exchange rate, and thus damaging living
standards. The general aviation industry appears to be a clear case in point.
Another is the pharmaceutical industry. But there should be no broad base
for impact on innovation.
In short, legal differences affecting input costs can put US companies
at a competitive disadvantage, at home or abroad, but differences
affecting product design are less likely to have this consequence. For
example, a study by Robert Litan, using data from 1978 through 1984,
could not discern a statistically significant effect of differences in liability
52
Though foreign-owned businesses in the United States presumably do not get this advantage
unless they purchase all of their basic inputs abroad.
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costs on export performance across industries.53 On the other hand, if
Americans are more likely to be familiar with the complexities than
foreigners are, the more costly legal process here acts as an invisible entry
barrier to foreign investors. This would have the effect of protecting US
firms from competition.
Conclusions
Transition in the United States from economic regulations in the past
to social regulations revealed general perceptions of the public and
advocacy groups not to favor business but instead to cherish society’s
welfare. However, policy making and enforcement of social regulations
brought to the American legalistic society anomalously large legal and
compliance costs that are deemed unnecessary. This changed the formerly
interdependent and friendly relationship between government and
businesses into one of frequently accusing each other in the courts. On the
other hand, we witnessed a change
from
government-assisted
enhancement in competitiveness in favor of industrial benefits into a
dilemma where industries face unpredictable regulatory costs, with
uncertainties in effects on competitiveness in the global economy.
Compared with other countries’ more cooperative and accommodative
style in regulatory enforcements, the American social regulations are
much more prescriptive and detailed in processes, and are thereby often
challenged in the courts by the regulated enterprises.
The formality of procedure and severity of punishment in US
regulatory measures are also associated with more conflicts, such as
disputes in penalties, civil suits for remediation and encouragement to
53
Robert E. Litan, “The Liability Explosion and American Trade Performance: Myths and
Realities,” in Peter H. Schuck, ed., Tort Law and the Public Interest: Competition, Innovation,
and Consumer Welfare (New York: Norton, 1991): 127-150.
Implications of American Social Regulations for Its Competitiveness
in the Global Economy
119
both government and the business to be plaintiffs in the courts. A large
amount of social, as well as economic, costs were incurred culminating in
unpredictability of judicial decisions, fast accumulation of legal expenses,
costly regulatory compliances, and implicit opportunity costs to society.
Furthermore, as regulated enterprises have become more defensive and
adversarial towards the regulatory agencies, information costs arising
from evidence gathering and tedious litigations are also not negligible.
Increasing integration of the United States in the global economy,
along with declining government effectiveness in the face of globalization,
pressured American regulatory decision-makers to think seriously about
limiting their policies. Many regulations initially raised as a safeguard for
workplace security and health are regarded by free traders as non-tariff
barriers. With additional costs the American public and private sectors
incurred on regulatory policies, people begin to question whether
American competitiveness has been impaired. Nevertheless, viewed from
living standards of the American people, the net social costs caused by
regulatory policies should not be very large to the overall economy.
However, the costs would be a big burden for individual enterprises. They
may be placed in a competitive disadvantage if regulatory costs fall on
inputs of production. But when the costs fall on product design, given
there being differences in export designs and no deterrence to innovation,
it is less likely to have negative consequences.
Finally, suppose perverse or unnecessary legal and regulatory costs exist
and do have at least some deleterious impact on specific industries. One
possible solution is executive branch review of major regulations to
ensure better cost effectiveness. This process has been subject to
speculation that it would only fuel the litigation fire. The cost-benefit test,
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however, could be backed by judicial review to safeguard its fairness. As
to the proposal to put a “social tariff” on incoming goods, ostensibly to
level the playing field between the United States and foreign competitors
(such as those raised by Ralph Nader from the left, or Pat Buchanan from
the right), this would amount to making value judgments on the
appropriate level of regulation abroad, since the United States would be
punishing foreigners for being less stringent than itself. Moreover, the
social tariff only affects imports and thus really masks protectionism. It
does nothing to help U.S. exports and sales in third markets, but rather
would hurt U.S. exports, since it would raise the U.S. exchange rate.