Reforming our outdated regulatory regime
Around the time of the American Revolution, the English penal code imposed a death sentence for what would today seem like trivial offenses. Historians call it the “Bloody Code.” It started with a few dozen capital crimes and ended with more than 200. You could be hanged for damaging Westminster Bridge, impersonating a retired soldier, cutting down a young tree, or walking through a forest at night with soot on your face.
Fast forward a few hundred years, and someone reading the Code of Federal Regulations or a state regulatory code would be forgiven for thinking things haven’t changed all that much.
Let me be clear about one thing upfront. No one is going to be hanged for filing a form late. The penalties for regulatory violations today pale in comparison to those imposed for relatively minor criminal offenses in Georgian England. But the shape of the two systems is more alike than a modern regulator would probably care to admit.
In both, the list of offenses is so long that no living person has read it. In both, the penalties can be severe enough to end a livelihood for conduct the offender did not know was illegal or unlawful. In both, enforcement is so hit-or-miss that it feels less like a rule than bad luck. And in both, there is a class of people for whom none of this is really a problem.
This is not a complaint about any specific regulation. Both the “Bloody Code” and our modern regulatory code are too strict in many important respects, but many, and perhaps most, rules have a compelling backstory. The problem is less any given rule than it is the pile.
A pile that size cannot realistically be enforced, and the English knew it. So they did what every system does when its rules outrun its reach: they ran on discretion. Stealing goods worth 40 shillings from a house was a hanging matter, so juries got in the habit of looking at a silver teapot and solemnly deciding that it was worth 39. Judges handed down death sentences and then recommended mercy for many of them. The king often pardoned. Whether you landed on the lucky side of the line depended, to a great degree, on whether someone important was willing to write a letter for you.
Our version is more humane, but I am not sure it is all that different. An agency with a mountain of rules and a handful of inspectors must choose. It prosecutes the memorable case, settles the awkward one, and leaves the rest alone. The regulated public learns the real rule, which is not the one in the book but the one about who gets punished. A system in which almost everyone is technically in violation and almost no one is prosecuted is not really a system of rules. It is a system of enforcement discretion, and that discretion tends to favor the same sort of person it always has.
Two groups do fine. The first is the well-resourced. The English gentleman was not above the law, but he had the resources to navigate the system. His modern heirs are well-heeled individuals and businesses. The vast majority of corporations maintain scrupulous compliance by hiring a team of lawyers and other experts to figure out the regulatory code for them. The cost can be significant, but it represents a relatively small percentage of overall expenses and can easily be passed along in the form of slightly higher prices. A few go ahead and take a calculated risk, knowing that they’ll often be able to avoid a large penalty even if things go wrong.
A complicated code nobody can follow may, in the end, produce less compliance than a simple code everybody can.
The second group includes the scofflaws. The bandit looked at 200 hanging offenses and a conviction rate that rounded to zero and decided the upside outweighs the downside. His modern heir looks at how often the inspector comes and what the fine would be, and he makes the same sensible decision. He is usually right. And here is the perverse part: the more the scofflaws prosper, the more their honest competitors notice, and the more everyone drifts toward not bothering. A complicated code nobody can follow may, in the end, produce less compliance than a simple code everybody can.
The people who get hurt are the ones on the sidelines: the small operator who glances at the rules, cannot afford to fully unpack them, and is not by temperament a bandit. He weighs the odds, figures that one bad inspection could land him in the proverbial noose, and goes back to his day job. Nobody counts him because he never showed up. His decision to forgo taking a chance in favor of the safer course of action is eminently understandable, but imposes real economic costs.
I have newfound sympathy because I have recently occupied that role, in a small way. Not long ago I applied online for a taxpayer identification number for a small LLC. This is supposed to take about 10 minutes. Instead, I got an error message and then spent several months trying to get it fixed: hours on hold with the IRS helpline and a long campaign of faxing forms back and forth, which is harder than it sounds when you don’t own a fax machine. I was tempted more than once to give up, and I would bet a great many people do.
The UK eventually fixed this problem. In the 1820s, Sir Robert Peel did two things at once. He got rid of the death penalty for many of the Code’s offenses and boiled what was left down into laws a person could actually read. And he created a professional police force. Fewer rules written clearly are more easily taken seriously. Britain concluded it needed law it could enforce evenly, against everyone, so that the outcome stopped depending on insider relationships and luck.
That, I would suggest, is the real case for regulatory streamlining, and it is not the case people usually make. The argument is not that regulation is bad. Good rules do real work, and whatever one thinks of the modern administrative state, few people want to be rid of it entirely. The argument is that a code too big to read has stopped being regulation at all. It has become a tamer version of the “Bloody Code,” and it has become increasingly unfair and ineffective.
Trimming it is an undertaking well worth the effort, and states like Idaho, Virginia, and Texas have made significant strides in that arena by cutting large numbers of regulations and making those that remain easier to read, find, and comply with. Having spent several years doing this work as the director of Virginia’s Office of Regulatory Management, I can attest that it is a tedious and unsexy job. But if it allows more would-be entrepreneurs to actually set up shop, it will pay almost incalculable dividends in the long run. And it will restore a sense of fairness and justice that has long been the cornerstone of the Anglo-American legal system, despite some unfortunate interludes over the last 300+ years.
Reeve T. Bull is the policy director of the the Fulcrum Foundation and former director of the Virginia Office of Regulatory Management.
