A New Era of Regulation

New government controls across a wide swath of industries are on the way

By John Carey and Theo Francis

Illustration by Nick Dewar

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At offices of the Environmental Protection Agency in Washington, some staffers are planning Inauguration parties. Their excitement is a harbinger of the sweeping changes in business regulation coming under President Barack Obama, for better or worse.

That an incoming Democratic Administration is calling for tighter controls on business isn't surprising. But this time the pendulum's shift isn't purely ideological. The past year alone has brought the financial meltdown, lead-laced toys, airplanes with dubious inspection records, vegetables contaminated with salmonella, and workers sickened by food flavorings—all of which buffeted businesses big and small. "There is clearly a recognition across the country that the deregulatory era has hurt America," says David Michaels, chairman of environmental health at George Washington University's School of Public Health.

With the political winds suggesting change is inevitable, many businesses profess to support increased regulation. The new mindset in Washington, says William Morin, director of government affairs at Santa Clara (Calif.) semiconductor gear maker Applied Materials (AMAT), "is the difference between people who want to make government work [and] a crew that viewed government as the problem."

Some companies are even asking for stronger oversight. Drugmakers are clamoring for a revitalized Food & Drug Administration. Some utilities are requesting limits on carbon emissions. "We are for strong regulation," says James C. Greenwood, head of the Biotechnology Industry Organization.

But behind the scenes, many executives are worried that regulators will go too far, imposing new rules so tough that they could threaten the economy. "There shouldn't be an overreaction and a stifling of innovation," warns R. Bruce Josten, executive vice-president for government affairs at the U.S. Chamber of Commerce.

First on the Obama Administration's to-do list: shoring up the financial system. Congress and banking regulators will consider proposals to help homeowners at risk of foreclosure. They're likely to tighten rules for making loans and boost banks' "capital requirements"—money held in reserve to backstop the loans they make. And they may impose new capital requirements on some hedge funds for the first time. Indeed, broad swaths of the "shadow financial system"—the lightly regulated derivatives markets—could come under tougher federal oversight, particularly credit default swaps.

Longer-term, Obama has said, financial regulation should be reshaped. Some agencies should be consolidated, and the risks big companies pose to the financial system should be monitored more closely. Proposals to merge the Commodities Futures Trading Commission, which regulates the futures markets, with the Securities & Exchange Commission are likely. And some are pushing for a government-wide watchdog to police consumer financial products.

Other regulators feel reinvigorated, too. At the Occupational Safety & Health Administration (OSHA), which has issued just one new occupational health regulation in 10 years, "there are some standards that have been on the shelf for a long time that could be dusted off and promulgated with new information quickly," says former OSHA official Adam Finkel. Elsewhere, the rulemaking in the next few years could be significant. New limits are expected on mercury and other pollutants. Trucking outfits could see shorter permitted hours for drivers and increased fuel-economy rules. Agribusiness might have to deal with new standards for farmers to prevent contamination.

UNCERTAINTIES AND OPPORTUNITIES

Of course, few rules will be issued without a fight. John Castellani, president of the Business Roundtable, is most concerned with the issue of climate change. "There's a lot of uncertainty about what is going to be the regulatory regime, how the technology will be supplied, what the impact on the economy will be," he says. "It will be a long, hard battle." In the pages ahead, we preview 10 of the fights to come.