COMPETITION IMPROVEMENTS ACT OF 1979, S. 382

TUESDAY, MAY 22, 1979

U.S. SENATE,

COMMITTEE ON THE JUDICIARY,

Washington, D.C.

The committee met, pursuant to notice, at 10:05 a.m., in room 2228 Dirksen Senate Office Building, Hon. Edward M. Kennedy, chairman, presiding.

Present: Senators Kennedy and Baucus.

Also present: David Boies, chief counsel and staff director; Thomas M. Susman, general counsel; Susan McDermott, counsel; Patti Saris, counsel; and Jeff Stone, research assistant. Senator KENNEDY. We will come to order.

OPENING STATEMENT OF SENATOR KENNEDY

The Committee on the Judiciary today resumes its examination of one of the most pressing issues of contemporary Government, the need to reform our Federal regulatory agencies and processes. The focus of this hearing is S. 382, the Competition Improvements Act of 1979, designed to reduce unnecessary anticompetitive economic regulation and to maximize the proven benefits of a rigorously competitive market.

The last decade has produced dozens of studies on how Federal economic regulation has tended to lock out energetic newcomers from industry participation and impose on consumers higher, sometimes collusive, prices. The results have been inefficiency in industry operation, inflationary pricing and, most importantly, a souring of the faith Americans have had in the soundness and fairness of governmental decisions.

Competition is not just an abstract concept, its effects are concrete. It promotes more efficient business practices, greater innovation, a wider range of goods and services, lower prices, and a more healthy economy in general. Though its appropriate role in the regulated sector has largely been ignored and suppressed by the agencies, its potential for effective use remains. Senate bill 382 is designed to put competition to work in the regulated industries.

Competition can and should be a regulatory tool. The committee has heard testimony from the Department of Justice and the Federal Trade Commission that in the area of economic regulation, there is little justification for governmental sanction of anticompetitive activities. Historically, this Nation has succeeded by relying upon competition to provide both discipline and stimulation for the economy.

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To the degree that the Government has to override the competitive mechanism of the marketplace, it should do so cautiously-and with the least anticompetitive means practically available.

This committee has also heard testimony from consumer groups who want to put an end to the unnecessarily anticompetitive regulations which take money directly out of the pocket of consumers by artificially raising the price of goods and services.

We have heard testimony from business groups who complain that anticompetitive regulations make it harder and more costly to do business.

We have also heard that this legislation should honor more clearly the distinction between economic and social regulation. The Department of Justice, in its precise and well-reasoned testimony, highlighted the fact that the jurisdictional reach of S. 382 is directed primarily at that form of "agency decisionmaking that effectively substitutes direct economic regulation for the free operation of the marketplace and not with regulation that sets standards to protect health, safety and the environment." The record developed on S. 382 and its predecessor legislation is clear on this point. However, the Justice Department has raised the possibility of misapplication of the bill and resulting delay in the functioning of health and safety programs. For that reason, we are considering modifications to S. 382.

The modifications proposed to the bill target specifically four types of direct Federal economic regulation:

First: Limitations on entry where the regulator seeks control over the actual number of participants in the market;

Second: Control over prices;

Third: Restrictions on the amount of goods or services which may be produced or distributed;

Fourth: Approval of business agreements between competitors which would normally violate the antitrust laws.

The modifications would allow an agency to regulate in this manner only if it considered the competitive effects of the action and concluded that it was the least anticompetitive alternative available to achieve its statutory goals. The modifications would allow agencies flexibility but, at the same time, it would restrict them from taking unnecessarily anticompetitive actions.

These modifications differ from S. 382 as introduced in two major respects. The analysis required has been simplified to a finding that the regulatory method chosen by an agency is the least anticompetitive alternative available, and the scope of S. 382 has been narrowed to affect only the four specifically delineated types of activities.

These modifications would focus the bill on Federal regulatory activity which directly supplants marketplace forces, and they would acknowledge special health, safety and environmental concerns.

The testimony we will hear today will be on S. 382 and the suggested modifications. We will hear from the Office of Advocacy of the Small Business Administration, which is charged with advancing the needs of small business enterprise within the Federal Government. We will also hear from the spokesman for over 1 million autoworkers who see more competition as benefitting their employers and ultimately benefitting themselves. We will hear from a group of independent truckers who have separately tried to offer competitive service and have been

prevented from doing so by the operation of ICC regulations. Last; we will hear from a panel of attorneys for the antitrust section of the American Bar Association.

Our first witness today is Howard Paster, who is legislative director of the International Union, United Auto Workers of America. In addition to representing UAW, Mr. Paster works with a number of public interest coalitions, concentrating on energy issues, health, and tax policy.

It is good to have you here. Nice to see you.

STATEMENT OF HOWARD G. PASTER, LEGISLATIVE DIRECTOR, INTERNATIONAL UNION, UAW

Mr. PASTER. My statement is brief, and with your permission I would like to read it if I may.

Mr. PASTER [continuing]. We appreciate the opportunity to express the support of our 1.5 million member International Union, UAW, on the revised version of S. 382, the Competition Improvements Act. I would like, at the outset, to explain briefly the general view with which we approach the broad issue of regulatory reform, an issue that has spawned a great deal of legislation of which the bill under consideration today is but one example. We reject the premise that Government regulation is some pernicious evil that must be eradicated. Quite to the contrary, Government regulation is essential to the health and safety of American consumers and workers who learned long ago that they could not leave their well-being in the hands of corporations for whom profit is the overriding objective.

Moreover, while economic regulation can work against the public interest, we are deeply troubled with the ease with which too many legislators have fallen prey to the simplistic, and erroneous notion that lessening Government regulation affecting health and safety is a valid means of fighting inflation. There are those, and we know the chairman is not among them, who would subject every regulation of the Environmental Protection Agency, or the Occupational Safety and Health Administration, or the Consumer Product Safety Commission, to some risk-benefit equation.

But to do so means assigning hard dollar values to human lives and illness. What is the cost of a child's life lost because an unsafe toy was kept on the market? What is the monetary cost of the death of a worker who is the victim of workplace cancer? How many dollars are we willing to put into the risk-benefit equation of 10,000 elderly people are forced to breath polluted air that requires them to be confined and perhaps shortens their lives?

These are not idle questions. For, as unreasonable as they are and as absurd as they strike some of us, these questions are being asked too frequently in too many places. Even more distressing is the fact that many who would quickly reject such questions as inhumane and unreasonable, are dealing on the edge of this abyss by toying with the more general, but equally inhumane and unreasonable, questions about the economic cost of health and safety regulation.

We reject, Mr. Chairman, the notion that there is too much health and safety regulation. Indeed, we think there is too little. We further reject efforts, in the name of regulatory reform, which would under

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mine the health and safety regulations already on the books. Certainly the administration of regulations can be improved, and certainly pointless regulations can be dispensed with. One need only look at the change in direction and emphasis at OSHA in the past 2 years to find an outstanding example of improved regulation with a clearer sense of priorities.

While we oppose improper tampering with health and safety regulations, we do believe that the revised version of S. 382, the bill now before you, does represent a responsible attempt to come to grips with a particular problem associated with economic regulation. I must say, we do not oppose economic regulation per se. For example, we are alined with the chairman in the effort to continue controls on crude oil prices.

But it is also true that in certain instances economic regulation has served as much to protect the regulated industry as it has to protect the consumer. The successful experience with airline deregulation is a good, current example of how the removal of regulation can serve the public. Airline fares are reduced, more people are able to use air travel, and in many locals employment in the airline industry has increased.

Senator KENNEDY. We have 1,100 more jobs at Logan Airport.

Mr. PASTER. I think that is a good example of what this bill can do. Moreover, there is good reason to accept the underlying premise of S. 382 as revised. That is, Government regulation can inhibit competition and, in doing so, increase the concentration of economic power and leave the consumer at a greater disadvantage in the marketplace.

As we read this bill it simply sets out the principle that economic regulation as distinct from health and safety regulation-shall take into account the competitive consequences of Federal action with the goal of promoting, rather than deterring, competition. We note as a key part of the bill in section 3(a), that agencies shall take "the least anticompetitive alternative legally and practically available to achieve statutory goals."

Our understanding is that this does not change underlying law which results in Federal regulations. Agencies must continue to pursue the goals set out for them by the Congress. But when those goals can be pursued in a practical way in a manner which does not unduly inhibit competition, then certainly that is a fair and reasonable standard to set forth.

Section 4 of the bill logically involves those agencies charged with antitrust enforcement in the economic regulatory process as it relates to the promotion or inhibition of competition. Section 5 continues the chairman's longstanding commitment to help concerned parties take part in litigation in which their members have a legitimate interest. We do have a question about section 6 of the bill which instructs all agencies to review existing regulation to bring them in compliance with the act. We think it important to do this, but we also think it important to make explicit-perhaps in report language-that the discharge of this mandate not become the excuse for any agency to fall behind in its current regulatory responsibilities.

It will not surprise the committee to know that we have a special concern for regulations governing labor standards. It is our under

standing of the bill that it does not propose to undermine in any way existing statutes and regulations concerning labor standards. For example, our support of this bill is based on our belief that it would not provide a basis for challenge to minimum wage or equal pay regulations. It would be helpful if the committee report could deal specifically with these and other similar matters which are not properly within the purview of the bill.

Mr. Chairman, having set out our general view of regulation and having addressed specifically, if briefly, certain sections of the bill, I would like to conclude my statement with a short, general comment about the broad thrust of this legislation.

The UAW believes that antitrust enforcement in recent years has failed to stem the tide of economic concentration. We support initiatives to improve antitrust enforcement, including legislation in those instances in which the agencies charged with antitrust responsibilities are unable or unwilling to act. One of the ironies of this situation is that Government regulation is itself sometimes the culprit. In its triennial convention in 1977, the UAW adopted a policy resolution on antitrust matters which said, in part:

The UAW urges *** use of the antitrust laws to enforce competition in industries now supposedly regulated but which in reality control the regulating agencies to prop up high prices to gouge consumers and workers.

By imposing a competitive test on economic Federal regulation, this bill will help to correct this unfortunate trend. It is for this reason that the International Union, UAW, is pleased to endorse and to pledge its support to S. 382 as revised.

Senator KENNEDY. Thank you very much, Mr. Paster, for an excellent statement.

I have some brief questions. One is whether you think that the revised language adequately distinguishes between health and safety regulations and economic regulations? Are you satisfied that it does? Mr. PASTER. I think that the language of the bill is satisfactory, Mr. Chairman. I think there are some questions which remain about what constitutes entry into the marketplace as the criteria for economic regulation. I think those can be addressed adequately in report language. I know what the intent of the bill is.

Senator KENNEDY. You might take a look at just those provisions. If you have any suggestions, we would welcome them.

Mr. PASTER. I appreciate that.

Senator KENNEDY. Do you think that the implementation of S. 382 will slow down the administrative process?

Mr. PASTER. There is no reason why it has to slow the process down. There are those who seek to slow the administrative process through undue litigation. They are going to continue to try to do that. But, no, I think it is entirely feasible for regulators, in the course of considering proposed rulemaking, to take into account the competitive aspects.

Senator KENNEDY. Do you think that S. 382 might actually reduce economic regulation?

Mr. PASTER. I think we have found that economic regulation has been too pervasive. I think, to the extent that it might reduce economic regulation-where it will promote competition without deterring agencies from their statutory goals—that it will serve a public purpose.