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July 27, 2005

Over-Regulation: Where Scandal Really Adds Up

By

There are really only two paths a country can take after a terrorist attack. It can vow to fight back, as the United States did after 9/11. Or it can surrender, give in to terrorist demands and hope the threat goes away. That's what Spain did after the March 2004 train bombings in Madrid.

Wisely, Tony Blair has taken the high road. The British prime minister responded to the July 7 bombings in London with defiance, warning the terrorists that Britain would never bow before them, but would instead carry on the fight.

"We are united in our determination that our country will not be defeated by such terror but will defeat it and emerge from this horror with our values, our way of life, our tolerance and respect for others undiminished," Blair told Parliament.

His words echoed President Bush's message to Congress on Sept. 20, 2001: "We are a country awakened to danger and called to defend freedom. Our grief has turned to anger, and anger to resolution. Whether we bring our enemies to justice, or bring justice to our enemies, justice will be done."

Bush and Blair have formed a formidable foreign policy partnership, and by working together our two countries are helping make the world safer. Of course, some in Britain claim Blair is a follower, simply taking his lead from Bush. But that's not true. In fact, on some issues, Blair is way out in front, and we in the United States ought to follow his lead.

For example, in a May 26 speech at University College in London Blair sensibly noted, "We cannot guarantee a risk-free life." That's good to hear from a world leader in an era when too many seem to expect government to protect us from all harm.

In his speech, Blair called for a "sensible debate about risk in public policymaking." Otherwise, he said, the British will continue down the road toward an over-regulated life, and the result will be "a plethora of rules, guidelines, responses to 'scandals' of one nature or another that ends up having utterly perverse consequences."

We in the United States are well aware of the dangers of over-regulation. Consider Sarbanes-Oxley. That law, thrown together after Enron imploded, was supposed to protect American investors. Instead, it will end up costing us billions.

For example, a survey of some 217 companies showed they'll pay an average of $4.36 million to comply with the new accounting standards, far more than the $3.14 million they'd expected to pay, according to Financial Executives International. And the bill will only get bigger.

An e-mail security company estimates businesses will shell out more than $4 billion to archive e-mail (as required under Sarbanes-Oxley) in 2009. This cost will be passed on to shareholders and customers, so we'll all pay for the "protection" the new law is supposed to provide.

In his speech, Blair couldn't resist tweaking the U.S. "There is a delicious irony in this [that] illustrates the unintended consequences of regulation. Sarbanes-Oxley has provided a bonanza for accountants and auditors, the very professions thought to be at fault in the original scandals," he noted.

To make sure Britain doesn't eventually pass its own Sarbanes-Oxley, Blair laid out simple guidelines. "Instead of the 'something must be done' cry that goes up every time there is a problem or a 'scandal,'" he says, "we will reflect first and regulate only after reflection."

Even more critically, Blair says he wants to start to roll back the regulatory state, especially in the European Union. Until the end of the year, Britain will be in the rotating presidency of the EU, so Blair should be in a position to act. He says he'll work to make sure cost assessments are finished before any new regulations are put into place, and that he'll speak with business leaders before changing any regulations.

"We also need a far more rational, balanced and intelligent debate," he says, sensibly. "Not every 'scandal' requires a regulatory response." Unfortunately, that approach hasn't yet reached across the pond.

Back on Labor Day 2003, President George W. Bush announced, "We have a responsibility that when somebody hurts, government has got to move." But it's knee-jerk movement that breeds over-regulation and the government's over-involvement in our lives -- even though, as Blair puts it, "government cannot eliminate all risk."

Hopefully, the prime minister has started a debate that will resonate not only in his country, but in the United States as well. We already have plenty of rules. We need more common sense.

Americans and Brits are smart enough to think for ourselves, and strong enough to survive. We'll fight off terrorists and, with a little common sense, survive the dangers of over-regulation, too.

Ed Feulner is president of the Heritage Foundation.

First appeared in Investor's Business Daily

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