Should We Run Agencies More Like Businesses?

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Legal scholar argues for greater reliance on entrepreneurial strategies in regulation.

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What do Apple, Snapchat, and the U.S. Environmental Protection Agency (EPA) have in common?

According to one legal scholar, they have all found success employing entrepreneurial strategies to achieve their goals. In a recent paper, Professor Philip Weiser of the University of Colorado Law School points to recent examples of so-called “entrepreneurial administration” as he argues that administrative agencies can improve regulation by operating more like businesses in key respects.

Specifically, Weiser claims that agencies can more effectively regulate by adopting leadership styles focused on entrepreneurship, much like those that proliferate Silicon Valley technology giants. These leadership styles should prioritize policy experimentation and what Weiser calls “trial-by-error learning,” both of which can help agencies act more “business-like” and achieve better regulatory results.

However, Weiser opines that both regulatory agencies and the scholars who study administrative law do not dedicate adequate attention to the importance of entrepreneurship in a system of governance. For example, most agencies rely on notice-and-comment rulemaking and agency adjudication as their primary approach to regulation, a process that dates to the Administrative Procedure Act of 1946 and which remains the dominant mechanism by which agencies produce regulations today.

Although the traditional approach to regulation has its merits and has stood the test of time, Weiser notes that notice-and-comment rulemaking has its limits, especially in an ever-changing society where technology has driven increased interconnectedness between people, governments, and the private sector. For instance, Weiser discusses how conventional rulemaking and adjudication led to lengthy, expensive, and sometimes ineffective drug and medical device approvals by the U.S. Food and Drug Administration (FDA).

To meet the challenges posed by a modernized world with constant technological advances, Weiser argues that agencies need to reinvent the way they regulate to be more flexible. Thus, as a supplement to traditional rulemaking and adjudication, Weiser advocates that agencies encourage the development of experimental and unconventional regulatory techniques and—equally as important—allow themselves sometimes to fail.

In other words, Weiser suggests that regulators should explore less traditional regulatory approaches that run a greater risk of being ineffective since they may not be legally binding. Examples of these approaches include enforced self-regulation, convening stakeholders to determine best industry practices, and the encouragement of private regulation.

Weiser acknowledges that one barrier inhibiting this notion of governmental entrepreneurship is that agencies may not have the legal flexibility to pursue nontraditional forms of regulation absent congressional approval. In addition, these alternative forms of regulation tend to lack the binding enforcement mechanisms that help make agency rules effective in shaping regulated entities’ behavior.

Still, Weiser states that agencies can look to successful start-ups for models of how to reinvent the regulatory processes. For instance, Weiser mentions the “lean start-up” model, where a business experiments with a particular product, examines data to measure the product’s success, and gleans insights from data to inform future iterations. This process is repeated over time as the product is improved on a continuous basis.

Entrepreneurial approaches that mirror start-ups in their acceptance of significant risks of ineffectiveness may seem radical from a governmental perspective, but Weiser insists that some regulators have already found success with similar techniques. EPA’s Energy Star program is one prominent example of a regulatory initiative that began as an experiment and grew into a well-known household name.

EPA began Energy Star in 1992 as a voluntary initiative through which businesses could apply for a special designation for energy efficient products. The program first involved the labeling of computers and monitors, but EPA continued to grow the program over the following years, expanding it to office equipment and residential heating and cooling systems. Eventually, the agency partnered with the U.S. Department of Energy to create new product categories and grow the program to include a wide range of energy-consuming products created and used by 18,000 private and public sector organizations throughout the world.

Weiser suggests that EPA’s development of the Energy Star program resembles the entrepreneurial manner in which successful companies like Facebook grow their businesses. The results of the program appear to support Weiser’s claim, as EPA reports that Energy Star has saved consumers and businesses over $360 billion, reduced greenhouse gas emissions by 2.5 billion tons, and has become a recognized brand by the vast majority of U.S. consumers.

Nevertheless, Energy Star has not been without its shortcomings, as Weiser notes that the program was susceptible to fraud and abuse in its reporting requirements. EPA responded to these claims with further innovation by requiring laboratory testing by an independent auditor to certify energy efficiency claims.

Overall, Weiser indicates that the Energy Star program was a bold idea premised on a risky foundation: that voluntary compliance might make for an effective regulatory regime with real benefits for both the public and regulated entities.

Moreover, Weiser argues that both federal and state agencies can find success by adopting similar approaches to regulation. They can learn from EPA’s Energy Star initiative by experimenting with different regulatory strategies, particularly those that encourage private regulation with agency oversight. To be successful, though, agency leaders will need to accept the risk of failure, something Weiser notes may be uncomfortable for some regulators.

Despite the risks of employing an entrepreneurial spirit to regulatory efforts, Weiser contends that modern regulators have much to learn from business leaders and can use those lessons to improve regulation.