Irrational Regulation: An Underlying Cause of Our Economic Woes

Today, there are game changing advances in semiconductor design and climate technologies. Leading entrepreneurs have bold ideas. Household names like Elon Musk and Bill Gates, and rising stars like NuScale and Last Energy are stepping forward with solutions to big problems. And yet, Washington seems intent on passing legislation and implementing regulation that slows down investment.

During an economic downturn, it seems irrational to burden manufacturers with more indirect costs that push our prices higher. But that is exactly what we are doing as our regulatory structure impedes getting innovative solutions to market quickly and cost-effectively. We don’t see the big results hoped for when burdensome legislation is passed. They overlay the bold ideas with increased reporting costs like the SEC’s proposed ESG (environmental, social and governance) 500+ page reporting and disclosure requirements.  

Worse, cumbersome regulations become outdated by the time they are implemented. In some cases, these antiquated laws are based on science, which is 10, 15 and in some cases 40 years old. Approvals are grounded on archaic rules and processes. For example, despite our national commitment to reducing our carbon footprint, innovative climate tech like small modular reactors (SMRs) can’t get approvals to build in the US.  It’s been 47 years since a new reactor was approved by the Nuclear Regulatory Commission (NRC), and the NRC uses a prescriptive approach that treats all sizes of nuclear power plants identically. As a result, the process is lengthy and expensive which creates uncertainty and raises a high-risk market signal to investors.  At the same time, new nuclear power designs are being developed in China, Europe, and elsewhere, endangering our nation’s traditional leadership in the space.

Another issue is that much needed legislative action is accompanied by additional spending on government programs, and cost reduction options are ignored. The Semiconductor Chips Act  aims at solving the U.S. semiconductor shortages and national security concerns. However, it does not offset taxpayers’ investment with a decrease in current manufacturing costs. In a recent interview, Morris Chang, founder of Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, noted, “The cost of production in its Oregon manufacturing facility is about 50 percent higher than that for its Taiwan factories.” In their “Government Incentives and US Competitiveness in Semiconductor Manufacturing” report, Boston Consulting Group (BCG) and the Semiconductor Industry Association (SIA) note that total cost of ownership in the U.S. can run 25%-50% higher than in other countries.

The deluge of regulatory rulemaking creates uncertainty for investors and CEOs. The WSJ editorial, “The SEC Attacks the Financial Markets” notes the “SEC is drafting rules at breakneck speed, issuing 16 proposals in the first quarter of the year. That’s more than three times the SEC’s average first-quarter pace since 2000.” Not only do the rules begin to restrict the flow of capital, but executives become less emboldened in driving groundbreaking decisions.

We need a bold vision for redesigning our regulatory system to marshal the necessary support, both material and emotional, from American business and the investment community. Here are five steps necessary to make that happen:

• Establish a “critical technologies” self-regulatory, standards-based approach supported by independent, transparent evaluation aligned with desired outcomes. 
• Enable a more flexible process which triggers “regulatory system upgrades” grounded on the latest science, technology innovations and evidence-based approaches.
• Embrace a graded licensing (or performance based) approach which in the case of SMR better positions the review of smaller designs more efficiently and cost effectively. 
• Engage industry engineers in ESG regulatory discussions so decisions are based on technology capabilities and future trends.
• Eliminate duplicative regulations streamlining the reporting requirements of manufacturers.

The power of the big idea is Job #1 for any leader looking to create sustainable change and seeking to guide an organization, a project, navigate a merger or change the world. Let’s unleash our innovators so they are dauntless and unencumbered in their pursuit of solutions that leave the world more capable of thriving.

Written by Lisa Gable.
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