Wednesday, December 17, 2008

Getting a Seat at the Table

It's been an extremely busy day here at Publius Endures, to say the least. Anyways, I now have a follow-up to my Culture11 piece posted at Donklephant (and cross-posted in pertinent part below), where I will now be contributing from time-to-time.

My most recent piece at Publius Endures dealt with a piece of legislation that largely fell under the radar: the Consumer Product Safety Improvement Act of 2008, which I argued needs significant revisions regardless of your political viewpoint. I have a much better piece (read: actual journalism!) up as of this afternoon at the excellent conservative site Culture11. The act, passed with almost no opposition, appears to represent the confluence of good intentions gone wrong, poor legislative incentives, and bad economics, with the added bonus of being particularly devastating to small and medium-sized domestic businesses. In other words, as enacted, the legislation should offend the sensibilities of almost any ideology.

The basic facts of the legislation appear, at first glance, to be quite reasonable. In essence (and although it also addresses several other subjects), the legislation is a response to the imported toy scandals of 2007, in which several mass-produced toys had to be recalled for containing levels of lead far in excess of the legal limits. As a result, near-unanimous passage of the legislation was almost guaranteed from the start - after all, who wants to be FOR lead in childrens’ toys in an election year?

The problems arise in the actual details of the legislation, which are voluminous and, worse, vague. As I write in the Culture11 piece (please do go read the whole thing!):

The biggest problem, perhaps, is that the law implements a new third party testing requirement on every SKU number of every children’s product (including individual titles of children’s books), testing that can run anywhere from a few hundred dollars to tens of thousands of dollars, depending on the type of product. It is unclear how often this testing will be required; however, the wording of the legislation suggests that it could be as often as every outgoing shipment. What is clear, however, is that large imported shipments will only need to be tested upon their arrival in the U.S.

The new law also requires a new type of labeling on all children’s products, in which these products must be stamped with various information for tracking the product, including the date of production. While seemingly easy to comply with, this will actually require expensive retooling for manufacturing machines. The law further mandates that suppliers provide their distributors with certifications for each shipment of each product, a bureaucratic nightmare that many businesses will likely violate occasionally due to simple human error.

Yet punishments for violations of the law are draconian — $100,000 minimum fines
for each violation up to $15 million, plus possible criminal sanctions. In addition, it is still possible that the law will be implemented in such a way as to turn some pre-existing inventory into contraband when the law takes effect on February 10, 2009 (unless this changes, existing inventory would have to be discarded, immediately driving many businesses to close and/or default on loans).

The piece goes on to discuss the way in which this legislation was passed, and how free market advocates can prevent legislation such as this in an era where “deregulation” is a four-letter word.

For those answers you’ll have to read the whole thing, but I did want to discuss something here that was not relevant to my point in that piece.

One of the most amazing things that came out during the course of my research was just how little this law is going to do to improve toy safety - indeed, it will most likely make children’s products more dangerous by causing the CPSC to focus on catching paperwork errors instead of finding dangerous products. This is true even though the bill significantly increases the agency’s budget.

Even more amazing was just how easily Congress could have passed legislation that actually would have improved safety. The people I interviewed for the article agreed that one of the best things that could have been done in the wake of the toy scandal was to force the CPSC to better prioritize its enforcement responsibilities. In essence, one of the reasons so many lead-laden toys got through last year was that the agency treats most enforcement issues as being created equal (unless, of course, there’s a death involved). This encourages a focus on finding problems that are easily found, but are usually relatively harmless - things like paperwork errors, for instance. It’s the same type of problem Megan McArdle says faced the SEC with respect to the Madoff case. Instead of fixing this problem, the legislation actively makes it worse by giving CPSC more technicalities to enforce.

Another possible solution that was mentioned to me was the idea of “component testing.” Under component testing (which the CPSC actually is, apparently, considering in some form), you require testing only of individual components instead of the final product. This is less costly on a per-test basis and allows manufacturers to make multiple products using the same components. So, for instance, a small children’s book publisher would only need to test its ink, paper, and coverboard rather than having to test every single title.

Yet neither of these easy solutions was even considered by Congress. Instead, one of my sources told me that Congress’ response to just about any proposed changes or objections was, effectively, “the National Association of Manufacturers is on board, as are Hasbro and Mattel, so we don’t really care what you think.”

This presents a major problem for small business (unless one of the major parties adopts something akin to the position I advocated in my Culture11 piece), to wit: How do small businesses defend themselves against onerous laws and regs when they can’t get a seat at the table?

One obvious answer is to organize into a more focused advocacy group, but even this doesn’t always get you a seat at the table. For instance, so far as I can tell (though I’m not 100% certain), the Apparel and Footwear Association (which, unlike other advocacy groups, is not dominated by its biggest members) did spend a substantial amount of effort pushing for changes to the legislation. Yet none of those changes made it through, suggesting they received essentially the same response.

And, finally, some breaking news. I just now found out that the National Association of Manufacturers (which supported the legislation) is petitioning the CPSC to implement regs that would eliminate a lot of the hardship to be caused by this law. I have to think about what this means…but I don’t think it’s inconsistent with the explanation I gave in my C11 piece.