Regulatory Reform Can Boost US Company Competitiveness
In this Guest Post,Oxford Analytica suggests regulatory reform might help make US companies more competitive.
President Barack Obama on July 21 signed the Restoring American Financial Stability Act, which contains relatively mild new regulatory measures unlikely significantly to reduce financial sector systemic risks. This reflects the fact that the Obama administration has not been able to counter the decades-old political discourse that maintains that most regulation is costly, counterproductive and likely to reduce the global competitiveness of US firms. However, there is evidence that some regulatory models might deliver long-term competitive advantages for US companies.
No ’smart regulation’. Obama tapped Cass Sunstein, an intellectual leader in developing new approaches to thinking about regulation, to head the White House Office of Information and Regulatory Affairs. Sunstein’s work draws insights from behavioural economics, and his writings and those of other theorists working in similar vein has important implications for financial regulations. However, a delay in Sunstein’s confirmation, combined with the administration’s broader political difficulties, has led to a failure to set forth or embrace new regulatory paradigms.
Instead, the administration has largely fought regulatory battles on ground defined by the proponents of deregulation, rather than attempting to explain how tougher (but also ’smarter’) regulatory standards might improve competitiveness.
- Financial sector setbacks. Both leading financial firms and political leaders failed to grasp the competitive advantages that might accrue to the industry from implementing better financial regulation. For example, the tightly defined Canadian financial regulatory system allowed its banks easily to weather the global financial meltdown and avoid hastily drafted post-crisis legislative clampdowns.
- Food safety climb down. The administration initially decided to pursue a modest overhaul of food safety legislation, but surrendered these efforts to other legislative priorities and failed to improve the regulatory framework.
- Energy policy. On energy policy, the administration did not follow up on new regulatory approaches that might allow US firms to take a lead in pioneering green technologies. The administration’s favoured comprehensive energy reform bill is moribund, so there will not be any action on the issue until the next Congress.
EU experience. The EU generally did not champion the deregulatory approach as strongly as the United States. At both the member state and the EU level, the EU has adopted tougher financial regulation, most notably in forcing bailed-out banks to divest themselves of assets, and in imposing tougher executive compensation rules. These financial regulations have generally focused on systemic stability, consumer or investor protection priorities, rather than encouraging competitiveness, but have been hampered by wider EU institutional deficiencies, including lack of uniform implementation and enforcement.
Canadian alternative. By contrast, Canada found it unnecessary to adopt major regulatory reforms, largely because its model of bank regulation allowed it comfortably to weather the global financial storm. Canada promotes its combination of better drafted capital standards, restrictions on bank leverage, and controls on securitisation as a model for other financial systems to emulate to forestall future banking crises.
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