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Friday, September 2, 2011

The Two Faces of Regulation

            Every so often, when you’re reading the newspaper, you’ll come across two different stories on different pages or even sections that complement each other perfectly. Each story was chosen and put in by an different editor, who was probably unaware of the other story, and it’s up to the reader to connect the dots between the two.
            God, I love newspapers.
            It happened earlier this week in the Santa Cruz Sentinel, and the two stories I’m talking about related to government regulation of private business. One story was on the front page and one was on the business page.
            The front page story had to do with a problem that occurred owing, in significant part, to a lack of regulation. The National Transportation Safety Board issued a report on the explosion, in 2010, of a Pacific Gas and Electric Co. pipeline under the city of San Bruno, CA, resulting in major loss of life and property.
            Among the findings of the NTSB were that PG&E had installed the pipe with a faulty weld in 1956, with no government inspection involved; had no records on file as to who installed it; never ran regular tests on its lines; and failed to respond adequately to indications that the pressure on the pipe was reaching dangerous levels.
            PG&E took the biggest hit in the report, but not the only one. The NTSB was also critical of the California Public Utilities Commission and the federal Pipelines and Hazardous Materials Safety Administration for inadequate supervision of the utility’s pipeline system. “For government to do its job — safeguard the public — it cannot trust alone, it must verify through effective oversight,” said Deborah Hershman, chair of the NTSB.
            That was the story about insufficient regulation. On the business page, the story was about problematic regulation.
            Graniterock, a Watsonville rock, gravel and concrete business, emerged victorious after a 14-day trial over state regulations covering employee lunch breaks. The company, a past winner of the Baldrige Award for business excellence, had been allowing its concrete-truck drivers to skip legally required meal breaks in exchange for extra pay and getting off work early. Several drivers filed a class-action suit alleging violation of state law regulating working conditions.
            After hearing the evidence, a superior court judge ruled that the company had made meal breaks available, but employees had freely chosen not to take them in exchange for other consideration. The company CEO was quoted as saying that freshly poured concrete is highly perishable and that the company offered pay and quitting-time options to provide the flexibility needed for its timely delivery. Several drivers testified that they appreciated that flexibility and that the company had also worked with them to be flexible on other personal-leave issues.
            An obvious question here is why lost lunch breaks seem to have gotten more regulatory attention than faulty pipelines transmitting a highly explosive substance, but the vagaries of government interest are fodder for another blog. What the two stories really illustrate are the policy choices that have to be made.
            Policies and the people who implement them are imperfect, and at the end of the day a representative government often has to decide which problem society would be better off bearing. Regulate business too tightly and you could have a good company spending two weeks in a trial over lunch-break policies. Regulate business too lightly and you could end up with an explosion that kills eight people, destroys more than 30 homes and creates a fireball in a residential neighborhood.
            Which problem would you rather have? I know my answer.