By David Goldstein, Natural Resources Defense Council
In my last blog, I asked why some Republicans are fighting a savings plan worth more than $1 trillion. I expect I know the reason. …..
Some Republicans today are fighting this nearly-2-trillion-dollar savings plan simply because it relies on government standards. They believe standards (aka Big Government) intrude into our lives and undercut the free market.
This interpretation is wrong on so many levels that I almost don’t know where to start. So let’s start with looking at the reasons why one might think free markets are good and Big Government is bad. Standards to save energy and the environment save consumers and businesses money, and benefit the U.S. economy. Government standards are not a move from capitalism to some form of socialism. Instead, they are a necessary condition for capitalism and free markets to work.’ See an earlier blog of mine here: http://switchboard.nrdc.org/blogs/dgoldstein/invisible_energy_government_ov.html.
Socialism is bad because it doesn’t promote economic growth and it stifles economic freedom. I address both of these issues next.
Capitalism (aka “free markets”) allows us to generate jobs and growth. Except, in this case, standards -and not unregulated capitalism – are the policies that generate jobs and growth.
The Republican argument is this: We want growth so much that we will oppose pro-growth policies on the grounds that they are Soviet-style socialism that will undercut growth. But that reasoning is flawed, because the truth is: Unregulated markets stymie growth.
Contrary to current Republican political correctness, standards are not the enemy of free markets: they are the foundation of free markets.
Republicans used to understand this. One of the leading proponents of energy efficiency standards was Charles Imbrecht, the Republican chair of the California Energy Commission throughout the 1990s. Mr. Imbrecht was appointed by Republican Governor George Deukmejian to chair this commission, which was established by legislation signed by then-Governor Ronald Reagan. When specific standards are analyzed for their effects on the environment, on jobs, on economic benefits versus costs, he said standards overcome failures of the market and enhance economic growth.
This is also the message of a January 16 op-ed in The Hill that I co-authored with Jason Knopes of ANSI, the American National Standards Institute.
ANSI is a nonprofit organization that oversees the establishment of standards. It is not a political organization. It was established by big business in America, and continues to derive its main support from business. ANSI and its members like standards that are developed in an open public process because the outcomes are good for business. Business found, starting in the 19th Century, that standards are essential to promoting quality products and better competition. To see this expressed in their own words, read the blog and the ANSI-sponsored website that tells more about the value of standards to business www.standardsboostbusiness.org.
Why are standards good for business?
The short answer: Standards define relevant goods and assure that prices are publicly known.
As I explained in detail in my 2007 book Saving Energy Growing Jobs, markets provide the best possible economic outcome only when the conditions of the first fundamental welfare theorem of economics are met. That theorem says: “If every relevant good is traded in a market at publicly known prices (i.e., if there is a complete set of markets), and if households and firms act perfectly competitively (i.e., as price takers), then the market outcome is ‘Pareto-optimal.” (Pareto-optimal means that no one can be made better off without making someone else worse off.)
And what is a relevant good? It must either be a brand name and a model number or a product that complies with a regulation on quality or quantity or performance. You can’t have much competition on providing products of a given brand and model. This is even truer when one recognizes that the brand name and model number are protected by government standards. How many times have you seen someone trying to sell “Rolex” watches for $30? Without common-sense safeguards of intellectual property: caveat emptor. This would apply to anything in the marketplace: ordinary products like dishwashing soap, gasoline, aspirin or milk…. any product where the characteristics are not obvious to the sight and touch.
Competition between specific, branded products does not lead to optimal outcomes, since the (government-protected) branding creates a mini-monopoly for the given product.
The only way we can have serious competition is by ensuring that different products compete for the same level of quality and performance at a lower price, or higher levels of quality and performance, determined using the same standards, at the same price. This competition has to be on a level playing field: If one product costs less but its production causes water pollution, or if one product entails higher utility bills than another, and that information is not public knowledge, real competition is impossible.
Quality standards protect consumers, workers, and businesses alike. They protect consumers from pollution or harmful ingredients. They protect workers from unsafe or unhealthy working conditions, and businesses from unscrupulous competition. Standards, therefore, are essential to making markets work. Without them we are stuck in a developing-country world of bazaars where buyers do not know what they are buying -or what others are paying. It is the reason that countries like America with its well-regulated markets are rich while others remain poor.
Standards and Economic Freedom
An anti-standards Republican might counter, “OK, I see how standards make us more prosperous, but this is not about prosperity, it is about freedom. I’d rather be a poor free man than a rich slave.” But this raises a factual question: Do standards restrict economic freedom?
The evidence is that standards enhance freedom. Standards made their debut in America in the 1870s when the Pennsylvania Railroad wanted to buy a specific type of steel that would make its rails last longer, but the big steel companies didn’t want to change their run-of-the-mill products. The predecessor to ANSI wrote America’s first standard, for that long-lasting steel that would meet railroads’ needs. The standard’s purpose was to enhance consumer choice.
Interestingly, the goal was to enhance economic freedom for this particular business. If a mega-corporation needs standards to get the economic freedom it wants, imagine how much more consumers like you and me need them.
Standards continue to enhance consumer freedom. Today’s more efficient halogen lamps could have been produced 10 years ago. But they weren’t produced until required by standards that were adopted by a Republican Congress and signed by President Bush in 2007 and phased in from 2012 to 2014. These standards unleashed a wave of innovation in LEDs as well as the first halogen lamps.
Consumers overwhelmingly support fuel economy standards, and standards for clean air and clean water, in part because they understand that standards are designed to protect them. Consumers who wanted more miles per gallon in their car without sacrificing performance had almost no ability to buy one before the recent improvements in fuel economy standards, because virtually no car manufacturer was producing them.
And even then, individual manufacturers don’t have the economic freedom to produce what they want if the unregulated market doesn’t support it. The nature of the marketplace is such that without standards, a manufacturer that wants to make greener or safer products cannot do so independently and make money. This is how seat belts became available.
If we start with a politically convenient slogan that government standards are always bad, our policies will veer 180 degrees away from the facts, and facts always beat ideologies. The fact that a centrally planned economy doesn’t grow led to the collapse of the Soviet Union. This collapse was all the more sudden and catastrophic because the Soviet leadership continued to operate on the false premise that central economic planning worked best.
The fact is that standards boost business (and protect the environment). This fact will beat a regulatory rollback in the long run if one is ever forced through. But a lot of unnecessary pain will be inflicted during the process.
So who benefits from rolling back or blocking energy standards, for instance? Just the fossil fuel companies, whose polluting products will be consumed on a greater scale. Certainly not the citizens and businesses who lose the benefits the standards offered, including energy savings, health protections, and a more stable climate. And not the businesses that supported the standards and provided jobs to produce improved products, and then benefited in the marketplace. And not the manufacturers of pollution control products that make other products more efficient.
Standards Generate Business Confidence that Promotes Investment
Regulatory rollbacks will generate business uncertainty. They will generate unanswerable questions that all businesses need answers to before they can commit investment: Will products that are no longer regulated really start getting less efficient? Or will producers look at more global markets and needs and continue along the path of improving efficiency? Will fossil fuel use continue to grow forever, or will future markets or regulations create stranded assets out of what appeared to be productive facilities?
With regulations, businesses can invest confidently based on likely futures. Our businesses can continue to build products to known specifications without worrying about being undercut by cheap imports, or conversely worrying that consumer preferences might shift to greener products and leave them in the lurch. Our utilities can invest in grid upgrades and other lower-cost solutions, rather than investing in more, more, and more power plants, gas transmission lines, and other costly infrastructure that might turn out to be unnecessary.
With regulatory rollbacks, business will hold back on investment and the public and marketplace will suffer.
Since the world is already facing the economic problems of underinvestment in job-creating activities, rollbacks for federal standards will cause business uncertainty that will hurt the economy even more.