The two recent crashes of a new Boeing jet have drawn attention to a topic at once polarizing and boring: regulations. A powerful and poorly understood anti-stall system in the new planes may have played a role in the crashes, leading lawmakers and the public to question how the system was approved in the first place.
The debate over regulation, however, is likely to be framed as the same false choice it has been for the past 40 or so years. Republicans will argue that regulations are bad for business and growth, while Democrats will essentially cede that point, arguing that rules are nonetheless necessary for health and safety. But in fact, the Boeing episode is a reminder that effective regulation is often good for business.
A system in the Boeing 737 Max 8 is programmed to tip the nose of the plane down to avert a stall. The pilots of the crashed planes seem to have been unable to override it. A Seattle Times investigation found that regulators, under time pressure to help Boeing compete with a new model from European rival Airbus, delegated review of the new system to Boeing itself. It was part of a larger FAA policy of delegating much day-to-day regulatory work to the company, a policy that has come under intense scrutiny since the crash. Boeing engineers, doing safety analysis on the FAA’s behalf, understated the system’s potential hazards, and pilot groups say that, until the first crash, they didn’t even know about the update.
The notion of sharing the work of inspecting and clearing planes with the company isn’t absurd. As Vox’s Matthew Yglesias pointed out, Boeing has a strong profit incentive to maintain a perfect safety record. But few people, or large organizations, act in perfect accordance with incentives, especially when short-term profits are pitted against long-term, hypothetical losses.
That’s why the U.S. has reams of rules about plane safety—which in turn is a big reason flying has become much safer in recent decades. How long can a pilot fly before they’re required to rest? There’s a rule for that. And one for how the cockpit is lit, and one for who’s authorized to inspect the propeller, and on and on. We don’t hear about them very often because the system tends to work.
In the weeks since the crash, Boeing’s stock had lost about $40 billion in value. Going forward, the company may have to reimburse airlines that are having to cancel flights while the planes remain grounded, and will probably face lawsuits from the families of crash victims. Then there are the 4,600 Max 8 planes yet to be delivered, all of which will stay on the ground until the company has fixed the issue and they are cleared to fly again. And then there’s the question of whether airlines will keep lining up to buy the now-infamous plane. (To the extent that the company manages to avoid long-term financial woes, it can thank the fact that it essentially has only one competitor, Airbus. But that’s another story.)
This might have been avoided with a better regulatory process, one that didn’t put quite so much faith in the company to regulate itself. But the notion that regulation can be good for business runs counter to the political debate about rules in Washington. Ronald Reagan popularized the phrase “job-killing regulations,” and the idea has remained an article of Republican faith. Aside from sometimes arguing that environmental regulations will create green jobs, Democrats rarely advocate for regulations on economic grounds, instead focusing on health and safety. The result is that, in the public imagination, the regulations-kill-jobs argument tends to go unchallenged.
But there isn’t much evidence to suggest that regulations are a net drag on the economy. When economists at the University of Pennsylvania and George Washington University edited a collection of the research on how regulations affect jobs, they found that regulation has little impact either way. When a leading libertarian economist at George Mason University, Alex Tabarrok, studied whether an uptick in federal rules had impacted the rate at which businesses launch and grow, he was surprised to find zero correlation.
Boeing is far from the only example of good regulations being good for business—or regulatory lapses being bad. Startups that make new technologies, like drones, need rules to clarify how they can test and sell their products without opening themselves up to lawsuits. (The FAA took a long time to put rules in place for drones, and as a result, companies that make them started testing in countries that already had clear rules.) Companies trying to grow meat from cow and pig cells in labs will need regulations to sell their slaughter-free chicken nuggets and chorizo, and for the public to trust their products. Cryptocurrency and blockchain startups are asking the U.S. government for clear regulations, and some American companies have set up shop in Europe in the meantime. Sometimes, regulations foster whole new industries. A provision in the Dodd-Frank financial reform bill forced banks to allow people to easily share their bank account data. From that change emerged a whole crop of startups and apps that use the newly sharable data to help people manage their money.
The renewed attention on airplane safety, and to what extent Boeing should be able to regulate itself, is a good thing. Last Wednesday, Congress hauled in Daniel Elwell, the acting head of the FAA, asking him why he waited to ground the planes and how the new software was approved. But the economic growth-versus-safety narrative has a half century’s worth of inertia behind it—it’s going to take more than Boeing’s stock having a bad week to rewrite it.