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Business Slips in Regulatory Mire

Regulation sometimes produces litigation as companies get bogged down with new laws

By Amy KaslowStaff writer of The Christian Science Monitor / February 15, 1994


WARLIER this month, the United States Labor Department proposed a $1.3 million penalty against a Pennsylvania painting contractor for ``failing to provide even the most basic protections for its workers.''

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The Manganas Painting Company, based in Canonsburg, Pa., was cited for exposing its employees to unacceptable levels of lead as they sandblasted lead-based paint from a bridge over the Little Miami River near Ohio. Congress mandated new lead standards in 1992 that bring the maximum allowable exposure to lead for construction workers to the same level as all other workers. Invoking these new standards, which went into effect last August, Labor Department officials slapped multiple citations on Manganas.

This episode demonstrates the Clinton administration's resolve to strictly enforce health and safety regulations for the work force. Labor Department officials say it is a harbinger of things to come in their broad overview of workers' rights. But it is also a window into the cumbersome regulatory process, in which the government can impose severe charges on employers for not playing by an increasingly complex set of rules.

While business studies measure the toll of regulation on economic growth, they fail to show the quality-of-life improvements.

The Labor Department's Occupational Safety and Health Administration (OSHA), the entity that clamped down on Manganas, is just one of dozens of regulatory agencies and sub-agencies that monitor compliance with laws ranging from environmental protection to product safety.

While these watchdogs are credited with noble efforts to improve the American quality of life, their laws have incurred resentment in the private sector.

Keeping up with regulations

Most businesses pay handsomely to keep up with the rules. Many must hire lawyers to remain within the law and protect themselves from the law. Some either ignore the laws because they are unaware of them or intentionally break the laws because they are too costly to abide by. They often find themselves in even pricier litigation that can wipe out their businesses or severely curb profits.

The nation's regulatory process has developed a new breed of analysts, who measure the impact on economic growth and how the regulatory environment affects the nation's ability to meet its most pressing challenges - ranging from job creation to urban development to corporate competitiveness.

One study last year by Convenant Investment Management Inc., a Chicago-based investment advisory firm, examined the legal and regulatory track record of 500 Standard and Poor's companies. It looked at corporations with regulatory troubles, including the failure to comply with OSHA, Environmental Protection Agency (EPA), or Equal Employment Opportunity Commission mandates, and companies involved in commercial litigation with customers, suppliers, and competitors.

``Greater legal and regulatory involvement almost universally resulted in lower returns,'' the report found. From 1988 through 1992, it asserts, run-ins with regulatory authorities and litigators lowered shareholder returns by 5.7 percent a year. By comparison, shareholders of the 100 companies with the least regulatory and legal involvement averaged returns of 21.6 percent; the average return was 15.9 percent for the Standard and Poor's 500.

Michael Boskin, chairman of the President's Council of Economic Advisers (CEA) during the Bush administration, wrote in a recent issue of ``Regulation: The Cato Review of Business and Government,'' that the ``cumulative effect of overregulation is hundreds of billions of dollars added to the cost of doing business, dragging down productivity and innovation, and raising prices to consumers through a kind of giant covert tax.''