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The Federal Aviation Administration recently declared that the Boeing 737 Max is safe to fly. Yet American consumers are nervous. And they should be. International regulators – from Canada, Europe, Brazil and China – have taken the unusual step of refusing to accept Federal Aviation Administration approval, insisting instead on conducting their own reviews.
They don’t trust the FAA. And if they don’t, why should we? The two fatal 737 Max crashes – the first in 2018 by Lion Air in Indonesia, and the second, several months later in 2019 by Ethiopian Airlines – reflected dangerous deficiencies in FAA oversight and, more broadly, a dysfunction of the US regulatory system.
In the aftermath of the accidents, Joint Authorities, an FAA-mandated investigative body made up of experts from NASA and international aviation authorities, targeted the faulty navigation systems and attributed them in part to the accident. FAA abdication of regulation in favor of self-regulation. Almost all aspects of the certification of the 737 Max were in the hands of Boeing, not the FAA, the joint authorities found, and the company’s self-regulation program has been marred by “conflicting priorities and an environment that does not support FAA requirements ”.
The 737 Max crashes were not, however, isolated events. Corporate disasters associated with deregulation and overuse of self-regulation are depressingly frequent: collapsed mines, pipeline spills, food and water contamination alerts, consumer fraud, clusters of cancers, fires, accidents and explosions. The Deepwater Horizon disaster and the collapse of Wall Street in 2008 resulted in part from deregulation and the failure of self-regulation. Big tech monopolies and the climate crisis are both on the rise, in part thanks to industries’ success in keeping regulators at bay.
Part of this success has been rooted in the outward appeal of self-regulation, which companies exploit to fight for deregulation. Trotting increasingly ambitious commitments to the environment and social responsibility, companies say they must be trusted to respect social and environmental values rather than being obliged to do so by law; that they should be left to self-regulate rather than be regulated. Which helps them push harder, and more successfully, to break free from regulatory oversight.
Jamie Dimon of JP Morgan Chase and his Business Roundtable recently called on big business to expand their mandates by serving the interests of workers, communities and the environment, not just shareholders. Yet the Round Table and the companies that make it up are fighting vehemently, without any sense of contradiction, or even irony, to roll back regulations meant to protect workers, communities and the environment. In 2017, for example, the organization pressured the Trump administration to reduce, among other things, ozone emission standards and coal-fired power plants, drinking water rules, worker overtime and fair pay requirements and net neutrality rules.
Businesses fight regulation because it’s good for their bottom line. In the absence of regulation, they can create their own standards and decide when and how to follow them, rather than being bound by binding government dictates. Moving from regulation to self-regulation is good for businesses. But, as the 737 Max shows along with other disasters related to deregulation, that doesn’t mean it’s good for the rest of us.
Self-regulatory programs are deeply limited and weak because the overarching business imperatives of prioritizing profit and shareholder value necessarily trump meaningful protection of public interests. The first must always come first, the last last. This is why, as economist Willem Buiter describes it, “self-regulation is in relation to regulation, for self-importance is related to importance, and sufficiency to righteousness.” Or, more worryingly, in the words of the official autopsy of the Deepwater Horizon disaster, “industry self-monitoring does not replace government… and the cost of forgetting this essential premise can be calamitous. “.
Only governments can provide strong protection of public interests – independent, binding and enforceable. Corporate self-regulation is a dangerous illusion propagated by companies wanting to lighten their regulatory burden and pushing to hide behind a deceptive mask of good intentions.
As Joe Biden prepares to occupy the White House, overhauling the regulatory system will be among his top priorities. His first steps have been positive (promising, for example, to reverse Trump’s setbacks in energy and climate regulation), but he will have to do more, and more broadly: promote robust and effectively enforced standards; agencies with integrity and independence; resilience in the face of industry lobbying and pressures; and a very skeptical eye towards self-regulation. One can only hope that Trump’s four-year attack on the regulatory system will take its place in history as a kind of tipping point, the necessary impetus for bold and far-reaching change to create a new and better system.
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