06/28/2010 06:28 am ET | Updated May 25, 2011

To Regulate or Not to Regulate, That is the (Wrong) Question

This seems a liberal's moment if there ever was one. As oil spews into the Gulf, the dangerous path of deregulating business seems to need no more evidence. Yet, conservatives, ever on the alert, issue their usual warning that regulation costs jobs and dampens the entrepreneurial spirit. If you're tired of this battle between the forces of light and the forces of darkness (you can choose who is who here), you should be. They are both right -- and they're both wrong.

The liberals are right because an economy without regulation is too frightening to contemplate: anyone for ending the inspection of food or airlines? The conservatives are right because an economy that is over-regulated is an economy even liberals would hate: anyone want to have your waitress requiring you to sign that you are aware of the salt and sugar content of your entrée?

They're both wrong because much of the economic and environmental disaster we have faced in the past two years is the fault of regulations that both liberals and conservatives would agree with but that have been ignored. The explosion on the Deepwater Horizon could and should have been prevented if the Minerals Management Service had enforced the regulations already on the books. The Securities and Exchange Commission could and should have stopped Bernie Madoff, if they had only used the regulatory power they already had. The explosion that killed 29 in the Upper Big Branch mine in West Virginia could and should have been prevented if the Mine Safety Administration had used the enforcement power already in federal regulations. The cost of health care could and should be brought under more control with regulations already on the books to prevent, or, if necessary, detect and punish fraud.

In short, society needs an appropriate level of regulatory oversight of the economy. But it also needs those regulations to mean something -- and they mean nothing when ignored by both business and bureaucrats. So the question we need to ask is: why do regulations fail to do their job?

The answer is not pretty, but there is one. Actually, there are several. In some cases, as we know from the Department of Interior's Inspector General, regulators behave unethically taking meals and gifts from the industry they regulate and even negotiating for jobs while employed by the taxpayers. These federal workers took an Oath of Office to the Constitution but it meant nothing to them.

In some cases, regulatory agencies are given dual and conflicting missions: advance the industry they regulate (generate more oil, more air travel, more coal) and police it (generate less oil, air travel, and coal if that is needed to protect the public). That's like asking us to lose weight by buying more food. It's a path to schizophrenia, not public and environmental safety.

In some cases, the independence of regulatory bodies is compromised by political pressure from the White House, Congress or both. A low level public servant who tries to do her regulatory work without regard to her boss, private and public Congressional oversight and pressure and White House policy and "encouragement" may have a fascinating and honorable career, but it will be a short one.

In some cases, regulatory agencies are starved for resources. Despite the popular impression, the federal civil service employs about as many workers now as it did in the 1960s, though its budget and responsibilities are vastly greater. In 1980, for example, 4,900 federal employees managed the Medicare and Medicaid program for 50 million enrollees. Today, there are 81 million enrollees -- and 4,600 workers.

In some cases, regulatory agencies are poorly led. Even if their employees want to do the right thing, they have to fight their own superiors to do it. Earl Devanney, Interior's Inspector General at the time, criticized the top of his own agency in 2006 for a culture of "anything goes." So should we have been surprised at what happened in Interior's Minerals Management Service in 2010?

Part of this may be just hiring bad people, but part of it is the bad organizations that these leaders create. And part of that leadership deficit may be the selection of people with insufficient competence and less character - and the failure to develop both. In the military, you get the training before you get promoted. In domestic agencies, you get the promotion and then, if you have the time and support, you might get the training. In the military, character is routinely evaluated at performance appraisal time. In domestic agencies, character traits are viewed as not specific enough to be part of performance agreements.

In some cases, regulators just ignore the obvious signs of trouble brewing. In hindsight, after tragic and costly failures, we always seem to find evidence that problems had surfaced before but were ignored, overlooked, or just treated as outliers that did not require fundamental change. Since nothing tragic followed, we got comfortable that the problems didn't matter all that much. The commissions that investigated the Challenger and Columbia space shuttle disasters found that compromised O-rings and foam strikes had happened before - a lot of times - without the loss of a shuttle. The problems were ignored because of what we now recognize as the "normalization of deviance." Blowout preventers had failed 45 percent of the time in containing oil spills before the Deepwater Horizon explosion - the normalization of deviance.

In some cases, regulations are immersed in our broader legalistic culture, which leads to months (or years) of litigation before we can actually prove in court that a business violated them and then hold it accountable (often with fines that bear little relation to the damage done and are paid in inflated dollars anyway). By law, BP was only responsible for $75 million in damages beyond cleaning up the oil. Not much of an incentive for a company that had $14 billion in profits in 2009.

In all cases, regulations are trying to work in a culture that seems hostile to them. Indeed, elected leaders, some citizens in the gulf, and oil companies went to court to fight a six-month government injunction on deep water drilling, a move designed to allow time to fix the problems that led to the spill (including lax regulatory enforcement). A cynic might conclude that regulations are put in place just to placate the public when things go wrong but are then routinely chipped away at, often by the people who put them in place, with a wink and a nod to the regulated. Then, when disaster strikes, everyone seems shocked (again) that the regulations were ignored, much like Captain Renault was "shocked, shocked" to find out gambling was going on in Rick's Café while being handed his winnings on the side. We should not be surprised that many regulations fail to work. Indeed, we should probably be surprised when they work at all.