OPINION:
Regulation costs more than taxes. Federal permitting, plagued by a permission-first civil law culture, is slow, expensive and arbitrary, creating regulatory uncertainty that delays investment in badly needed infrastructure.
Beyond the measurable costs of this bossy culture are more ineffable ones: The depressing need to wait for bureaucratic permission chills our natural aspiration to mix effort with our talents to create goods others will value.
A healthy economy encourages private actors to create social goods by allowing them to capture a portion of the value they create. The butcher, the baker and the candlestick maker pursue their private interests and yet create the social goods of meat, bread and light. It is in all our interests that they are allowed to pursue theirs. This is market capitalism.
But why does capitalism work in some places and not others? Capitalism cannot flourish where capital is dead. The rule of law — specifically, the administration of property rights — breathes life into capital by making it fungible; fungible capital leverages future efforts. Property rights create the expectation of reward that drives economic effort.
Where there is no courthouse to administer property rights, economic activity is hobbled. The county courthouse umpired the economic ascendance of America. It punishes crime, adjudicates disputes, and fosters economic activity by record-keeping.
There are only three property rights, and they are nested like Russian dolls: identity, title and exchange. Free moral exchange can occur only between actors who have clear title to their property, and title has meaning only in relation to identity.
Common law property rights administration begets more value creation than civil law administration. The civil law’s centralized permission-granting governance hampers economic freedom by requiring people to wait for government decisions. The decentralized common law liberates people because the government’s role is mostly limited to correcting offenders.
Our enhancement of the English common law tradition of liberty explains our rise to global economic preeminence. Our turn toward the French civil law culture of overreach has diminished it. But we can recover our economic dynamism by using new tools that better extend property rights to all.
To reform federal permitting, we should return toward a common law, decentralized, enforcement-centered style of governance that leaves people free to make their own decisions as long as they obey public standards.
Governance defines the limits of property rights. The courthouse recording function that expanded the U.S. economy is now available everywhere — in the cloud. The advent of regulatory technology means that sensors, ledgers and calculators can now prove who did what, and when and where it was done, shepherding in a new era of transparency and low-cost property rights administration.
Sensors detect everything from biometrics to air quality, Blockchains record it indelibly, and machine learning turns data into information. This courthouse in the cloud will make regulation more effective, dramatically less costly, and return more freedom for economic decision-making to ordinary citizens who no longer have to wait for a government permit.
On the spectrum of available permit reforms, the most effective is usually to stop issuing a permit; the government should publish a general rule and then enforce it in the few cases where infractions occur. But sometimes, ex-ante regulation really is called for because the regulated activity is especially dangerous, or particular offenders might be hard to identify or lack the financial wherewithal to remedy the harm.
In cases like these (e.g., pollution), the best option is a permit by rule, where a permit is automatically granted within a certain time frame, giving the government the opportunity to verify that the applicant has met its published criteria. The Environmental Protection Agency and at least 38 states already have some form of permit by rule. This tool should be used more.
Policymakers should innovate with the permit-by-rule approach using voluntary pilots, transparency technology and private insurance to protect the public. Regulated companies would gladly trade radical transparency for accelerated permitting and safe harbor, taking full responsibility for their activities and giving government real-time information for expedited enforcement (as long as there is a well-defined cure period for any problems).
This way, the public would be better protected (any remediation would already be funded by private insurance), and the economy would be allowed to grow.
The bipartisan call for permit reform emerges from the left’s discomfort with balancing the interests of two of their key constituencies, conservationists and clean energy developers. Permit by rule with transparency technology and surety bonds can balance those interests because it will make permitting clean energy projects easier while ensuring environmental standards are better met. There is a real opportunity here for a bargain between left and right. We can refocus scarce government resources where they belong: standard-setting, real-time monitoring, and correcting offenders.
Permitting reform will better engage private capital to create social goods. Regulation costs more than taxes, but regulatory uncertainty costs more than regulatory burden. Clear rules and a clear process for remediation of any mistakes will dramatically increase investment in needed infrastructure, including clean energy.
Investors are better than governments at measuring and mitigating risk; let’s empower them.
Policymakers need to ensure that our regulatory regime protects public health, safety, and environmental standards without hamstringing the economy. Overregulation creates an economy of businesses too big to fail or too small to comply.
Refocusing the government on correcting harms rather than granting permission can lift us out of our economic doldrums — and restore our sense of personal liberty.
• Stephen Hollingshead is a former regulator under former President George W. Bush, CEO of the regulation technology startup ChangeInEx, and a member of the Council to Modernize Governance, where he writes on regulatory reform.
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