At times during the recent election, the political rhetoric seemed to suggest that there were only two possibilities: Total government control over all business practices that would bring the economy to a halt or a complete lack of regulation that would result in utter chaos.
As is often the case with politically charged interpretations of policy issues, reality shows that regulatory conditions must fall somewhere between the two extremes.
Too much government involvement really does make the economy less efficient and can constrain growth. At the same time, it is imperative for the government to maintain a stable regulatory framework that provides support and certainty for the nation's business leaders and aspiring entrepreneurs.
This includes protecting companies from themselves. For instance, when manufacturers are allowed to cut too many corners, it can result in the development of serious consumer safety issues that damage the reputation of U.S. brands.
Companies must be proactively involved in protecting public safety
In many areas, it is simply unrealistic to expect government agencies to be able to fully ensure public safety without significantly affecting the high level of operational freedom that allows U.S. businesses to compete in the global economy.
In a consummate example of this fact, The Associated Press (AP) recently reported on a regulatory failure involving imported jewelry that was tainted with cadmium.
The AP's Justin Pritchard reports that, following a "children's jewelry sweep," the Consumer Product Safety Commission (CPSC) discovered six of the items it collected were hazardous by the agency's standards. However, it failed to pursue recalls or warn consumers about the health risk, claiming that none of the items met the legal definition of a "children's product."
In addition, the regulatory organization allowed Wal-Mart and another retailer to pull unsafe jewelry from their shelves without contacting consumers who had previously purchased identical items.
According to Pritchard, the CPSC pointed to its "limited resources" as an explanation for its shortcomings. This is somewhat valid, as the agency's staff numbers less than 600, although it is charged with regulating thousands of different products.
Furthermore, the agency's limited legal authority makes it difficult for regulators to compel any company to conduct a product recall.
This underscores the point that private-sector companies must be actively involved in pro-safety efforts, or the infiltration of hazardous substances into U.S. consumer supply chains will be inevitable, leading to public outrage and a sprawling, reactionary expansion of product regulation.
In a statement to the APEC Toy Safety Initiative in Hong Kong, CPSC Chair Inez Tenenbaum asserted that "all of us should be committed to keeping hazardous or toxic levels of metals out of surface coatings and substrates of toys and children's products."
She went on to assert that the failure of voluntary efforts by industry would, in fact, lead to further regulatory developments.
Better labeling processes could provide an opportunity for compromise
When companies in a given sector are able to demonstrate that they have the capacity and desire to keep dangerous materials away from the public, it decreases the impetus for further government regulation.
However, in order for such a situation to be seen as acceptable by politicians and the public, companies will need to bolster the credibility of their claims to be capable of providing security in the absence of extensive government regulation.
The implementation of enterprise-class labeling solutions can facilitate industries' efforts to prove that effective self-regulation of supply chains is possible. When all shipments are securely marked with barcodes, companies can ensure that counterfeit and unsafe components are kept out of their distribution systems. Also, in the event that safety issues are uncovered, the items in question can be effectively traced back to their manufacturer, allowing companies to cut irresponsible suppliers out of their network.