How red tape is holding the US back

There is a cynicism about government in America today that I find incredibly dispiriting. This isn’t about a lack of good people in public service, at least at the federal level. And yet, even the many talented ones can’t get things done quickly enough. There is an entrenched belief that government, as Reagan famously put it, is the problem not the solution.

But the real problem isn’t government itself — it’s bureaucracy. America is a big, complex and diverse country. And over the last half century or so, both the public and the private sectors have become ever bigger and more bureaucratic.

Large, complex organisations with layers upon layers of managers represent the majority of employment in the US, and the vast majority of the value of the S&P 500. Likewise, the bureaucratic framework of government itself has expanded into a tangled mass of red tape since the 1960s.

As Philip K Howard, founder of the non-profit organisation Common Good, has written, “the [social and political] upheavals of the 1960s caused public organisations to veer . . . towards legal and bureaucratic prescriptions”, with the hope that more rules would purge all bad behaviour on the part of institutions and people with authority.

Certainly, some of the new rules were good — covering things such as civil rights, environmental protections and product safety. But rulemaking has burgeoned across the board. In the late 1950s, the Federal Register, which contains all the federal government’s rules and proposed rules, was about 10,000 pages. Today, it is nearly 10 times that size.

The complexity of many of these rules is astounding. I’m a policy geek, but even I have a hard time understanding many bits of trade, financial, or energy rules and regulation.

Complexity is a big challenge — the human mind isn’t actually geared to understand multiple data points in detail. We are better at understanding principles, and we like it when we are given the freedom to implement them as we will. Reams of rules set up to solve particular situations that may or may not be applicable in the moment frustrate most people.

I’ve seen, for example, farms labelled wetlands after the wrong bird lands on a row of crops. I’ve seen factory owners have to rebuild entire operations because a certain kind of paint is outlawed. I’ve heard from US mining executives who tell me it will take them five to six years just to get a permit to open rare earth mineral facilities. And don’t get me started on the complexities of federal student aid forms, or New York City building codes.

It’s not that the intentions are bad on the part of rulemakers. It’s just that it’s hard to account for all the nuances in any one-size-fits-all paradigm. And it’s always the little guy, who doesn’t have the capacity to lobby or litigate, that suffers the most from excess rulemaking.

Cost is another big problem with bureaucracy. According to a 2016 study by academics Gary Hamel and Michele Zanini, bureaucratic waste — in the form of delays, duplication of work, overregulation, excess management, useless paperwork and so on — costs America about 17 per cent of its GDP every year. That figure might well be higher today, given the increase in both corporate concentration and the size and ambition of the public sector since the study was done.

Some of the most egregious examples of waste are in areas such as healthcare, where the dysfunction of both the public and private sectors meet in a toxic stew of rent seeking. About 30 per cent of the excess costs in American healthcare are down to bureaucracy, according to a study by the Commonwealth Fund.

All this would be a huge problem at any time. But it’s become an existential one since 2021 when the Biden administration began its massive public sector stimulus programme, which quite correctly aims to upgrade both the country’s ailing infrastructure and its industrial commons.

While money coming straight from the White House has actually made its way relatively quickly into communities, projects still face multiple delays and administrative burdens.

Consider, for example, that it took an act of Congress to approve the Mountain Valley pipeline project to take fracked natural gas from western Pennsylvania, Ohio and West Virginia to markets throughout the mid-Atlantic and south-east because of regulatory challenges and legal hurdles. You may not like shale, but if we’ve decided to use it, we might as well make it easier to transport across states. 

Increased energy needs related to Biden’s ambitious Inflation Reduction Act and to the growth of artificial intelligence (both of which require a lot of new electricity) may be where the rubber meets the bureaucratic road.

Regulatory infrastructure in the US just hasn’t kept up with the increased need for power, and the number of projects to upgrade grids that have to be approved has ballooned. For example, AEP, a major Ohio utility, recently testified before Congress that it could take a decade to permit and build many of those crucial new projects.

More staff would help, but so would fewer rules. Speeding things up will be key to building back better, and making sure that Americans can start to see government as a solution, not a problem.

rana.foroohar@ft.com