In a previous post, Where to Start with Regulatory Reform, we made the case for changing the incentives that govern the way regulators are measured and compensated. Today, we offer a starting point for the District’s regulatory reform efforts:

The Problem

In a Washington Post article dated July 10th about Aetna’s withdrawal from the DC health insurance exchange, well-respected health policy consultant Bob Laszewski had this to say:

 

“The District has never been thought of as an attractive market. It’s not a state — it’s one city, one moderate-sized city, and it’s also known for extreme regulation. When you have a small market that gives a lot of regulatory trouble, for insurers, it’s like why bother?”

 

Aetna said why bother. Who knows how many other organizations have said as much when considering whether to do business in the District over the last decade. Yes, we’re a relatively small market, but we have a high level of disposable income. The profit-making opportunities should outweigh the lack of overall size of the market.

We believe the District government should be making a public and serious effort to make the District a better, easier and less expensive place to do business. The area in which we have the most control over the cost and ease of doing business in DC is our regulatory system. The District government should undertake a highly visible effort to reform the way we regulate almost everything.

Keep in mind, the District’s economy has grown at an average rate of only 1.28% since 2007, and it grew at a rate of 0.47% over the last two years. All of the most important challenges we face — a real unemployment rate in double digits, an increase in extreme poverty, growth in inequality, and a homelessness crisis — can all be traced directly back to slow growth.

How to fix it

Only the deep, structural reform and modernization of the way we regulate will create the framework from which our economy can break loose from the bonds of slow growth and meet the needs of all its citizens.

 

red tape ii

 

 

The work of modernizing the District’s regulatory architecture will be painful and slow. It’s technical in nature and requires the help of subject matter experts in a range of disciplines. It is not glamorous by any means, which is why most politicians don’t like to touch it. But it has to be done, and somebody’s got to do it. It’s time to man the barricades.

One of the keys to any regulatory reform is changing the incentives for regulators. As it stands, a regulator is compensated and measured based on how many rules get written. We’ve got to stop measuring process and start measuring outcomes.

Where to start

We’ve targeted four areas as being particularly ripe for reform:

  1. Labor Markets — As described in this op-ed in the Washington Business Journal, the District’s labor market has become sclerotic and inflexible. The op-ed calls for the creation of a labor market commission similar in scope to the tax revision commission that recently overhauled the District’s tax system.
  1. Telecommunications — Telcom companies are heavily regulated by the FCC, including the infamous Title II regulations originally designed for the regulation of the railroads. DC’s local telcom market is as competitive as it’s ever been. The time has come to overhaul the PSC and the way it regulates telecommunications companies that do business in the District.
  1. Healthcare —  If there were a more favorable regulatory climate, the District’s health market is large enough to warrant being here. Simplifying the way we regulate both insurers and healthcare providers will attract more of both.
  1. Criminal Justice — From decriminalization through sentencing reform, there is strong bipartisan support for the reform of the criminal justice system. Oftentimes you have to dig to find the moral basis for regulatory reform. When it comes to the criminal justice system, it’s there for everyone to see.

Over the next few months, Economic Growth DC will be establishing committees of experts in each of these subject areas who will come together to produce recommendations for reforms. If you are an expert in any of these subject areas and would like to contribute to our efforts, contact us at regulatoryreform@economicgrowthdc.org.