Unrules Can Unravel Business Regulations

In the United States and around the world, politicians, academics, and businesses often rail against burdensome and costly rules that they claim hamper innovation and economic growth. Sometimes these complaints emphasize the sheer volume of pages contained in regulatory law. In a December 2017 press conference, for example, then-President Donald Trump dramatically cut a red ribbon connecting a small stack of papers with a nearby giant pile of papers taller than himself—a visual display intended to represent the growth in US regulatory burdens from the 1960s to today. 

Some research studies have seemingly substantiated this common business-oriented narrative by documenting the growth in the number of obligatory words such as ‘must’ and ‘shall’ contained in sources of the law, such as the US Code of Federal Regulations. Yet in a recent article in the Stanford Law Review, we reveal that, in reality, regulation imposes far fewer obligations on business than the raw volume of regulatory pages or obligatory words might otherwise suggest.

When government creates rules that impose obligations, it often pairs them with what we call ‘unrules’. Unrules limit the scope of regulations by interspersing loopholes that can dilute the force of the obligations. Exemptions, exceptions, waivers, variances, and other such unrules can often open a gap between the law’s expectations and the reality in terms of what it delivers. Take tax regulations, for example, where the gap seems awfully big indeed. By one recent report, some of the wealthiest Americans pay almost no income tax, notwithstanding the 37 percent marginal rate that ostensibly applies to high-income earners.

Using computational-linguistic analysis, our research demonstrates that unrules are virtually omnipresent in US regulatory law and have been for years. Across federal statutory and regulatory sources of law, we find one obligation-alleviating word for every roughly 6 obligation-imposing words. Even this ratio likely understates the importance of unrules, as many obligation-alleviating words create programs for waivers and exceptions that can be used repeatedly to dole out relief to individual targets of regulation—or to waive or exempt wide swaths of legal requirements across the board.

As law and society scholars have long suggested, no one should assume that the law on the books matches the law in action. We have identified a mechanism by which this gap can occur. Rules come along with unrules, and the latter can undercut the former. And make no mistake, business lobbyists look for ways to exploit unrules to escape from regulatory obligations. Some of the same businesses that complain about the burdens of regulatory obligations find ways to obtain waivers from them. 

The specter of excessive regulation has been something of a political bogeyman in American discourse at least since Ronald Reagan’s presidency forty years ago. But the reality of unrules calls this portrayed monster into question. For one thing, it suggests that solely focusing on the number of pages or obligatory words found in regulatory law, as critics of regulation have done, overstates the magnitude of regulatory burdens. It is misleading to conclude that a total count of restrictive words represents the actual burden level imposed by regulation without accounting for the ways that unrules can negate the actual operation of these restrictions.

But more than that, the ubiquity of unrules raises questions about whether the regulatory system is in fact protecting the public as much as the public expects. For example, consider the US system of regulating medical devices. Even though US Food and Drug Administration regulations call for new medical devices to be reviewed for their safety and efficacy, the vast majority of such devices enter the market each year without ever going through the review process—thanks to an unrule that lets them escape scrutiny. Yet medical devices have been identified with thousands of fatalities and over one million injuries in the US over the past decade. Upwards of 70 percent of all recalls of high-risk medical devices have involved products that reached the market through the FDA’s unruly escape hatch. 

These kinds of examples might not be as troubling if the invocation of unrules was subject to the same procedural and judicial scrutiny as the imposition of rules. But that is not always or even often the case. We not only find that unrules are ubiquitous, but that they are also less susceptible to oversight than are other forms of regulatory power. Regulatory agencies’ waivers of rules, for example, often escape normal transparency requirements. The procedural requirements and prospects for judicial review that normally act to constrain agencies’ discretion when they impose regulatory obligations do not apply with the same vigor when agencies alleviate obligations or waive them entirely. Overall, we find reason for scholars and the public to worry about unregulatory capture perhaps as much as regulatory capture.

The solution to unregulatory capture will not be, of course, to make unrules disappear. Rules realistically cannot exist without unrules that can at times help administrators make appropriate adjustments to regulatory obligations when needed. The better approach, in the end, would be to ensure that administrative law becomes more attuned to the risks posed by unrules and that it demands greater transparency and oversight of the various ways that regulatory obligations can be alleviated or lifted. A proper rule of law, in other words, should also include a robust law of unrules.

Cary Coglianese is the Edward B. Shils Professor of Law and Director of the Penn Program on Regulation at the University of Pennsylvania Law School.

Gabriel Scheffler is Associate Professor of Law at the University of Miami School of Law.

Daniel E. Walters is Assistant Professor of Law at the Pennsylvania State University College of Law at University Park.