Does Regulatory Control Help or Hurt?

The pentagon is a massive office building in Virginia. It is the Department of Defence Headquarters and is across the river from Washington DC.  Some see it as a symbol of war and oppression, it nonetheless represents a  remarkable achievement.

The Pentagon from the Potomac Side By Wikipedia User  “Touch of Light”

It is huge

It has five stories above ground and two below. Altogether there are 6.5 million square feet of office space and corridors.

Including the central courtyard, it covers nearly 34 acres.  Its population is that of a small city. It has six zip codes. All in all a big building.

Huge is not its most remarkable feature.

What is remarkable is how quickly you can build if you decide to do it.

The timeline for building

There is a building being built near me that is somewhat smaller than the pentagon. A five story apartment building. I don’t know how long it was in planning and regulatory approval, but 13 months is the expectation for construction. Apparently that’s normal any more.

The Pentagon was different.

Prior to its construction the Defence Department was housed in temporary, albeit large, buildings scattered about Washington. Secretary of War Stimson told the president in May 1941 that something larger and more consolidated was required. On the 17th of July a congressional committee assembled and the military told them of their needs. The military offered to report back on possibilities for their idea in five days. In that period they had a conceptual design for a site near Washington. Their plan was approved and funding was approved on the 28th of July.

As is familiar today, the original site was found to be wanting. The building would have marred the view of Washington from Arlington National Cemetery. So, you just pick a new site, expropriate some property adjacent to an airfield you already own and carry on.

The president approved the revised plan on 2 September. By then the building contractors had been selected and more detailed building plans were underway. The only limitation specified was “Use as little steel as possible.”

Construction contracts were finalized on the 11th and they broke ground the same day. Detailed architectural and engineering plans moved along as construction began. Preliminary drawings were approved in October. All of the drawings were finished by late may 1942, and by then construction was well along.

The design made it possible to build one wing at a time and they did. Each was was occupied as soon as it was complete. The whole building was complete by 15 January 1943. Nineteen months from the beginning.

The only negative was it cost nearly three times more than estimated. Given the time to completion, the terrain and soil conditions, and the  restrictions on steel it is an amazing accomplishment.

Today would be different. Never mind 19 months, could you build it in 19 years from concept to complete? Given construction regulation and standards, 19 years might be challenging for a non-governmental developer who had to comply with the morass of regulation, inspection, and approvals..

The value of regulation

Construction standards and their regulation have a purpose. For buildings, bridges, and highways they provide expected results and are safe. The question is how far should you regulate and how fast should you issue approvals?

The cost of regulation

I would be surprised if any developer objects to reasonable regulation. They do however resent officious civil servants who have taken it to themselves to be obstructionists. Delays are common and petty regulations can stall vast projects.

Many objections can be accommodated, but not if they are likely to take years to find their way through the approval process. The cost for lawyers and expert witnesses can drive the cost beyond what a developer is willing to pay. More commonly they are in deep enough that they must continue. In those cases, the added cost is born by future tenants or buyers.

No one seems to account for the cost of regulation when assessing the cost to build. I don’t know for big buildings but I have been told for a new house, the cost for government mandated standards, fees, and services exceeds $160,000. Some share of that is likely reasonable.

An option.

Regulatory agencies tend to set their own rules. It’s possible they are good at it but older ideas tend to persist. Perhaps there are better ways to regulate things today. Decades ago, forestry regulation were an enormous burden. Might still be. Private operators thought they could get the same results at a cost about 1/30th of what it cost to do it the government’s way. They may have been exaggerating but I would be surprised if their costs were wrong by more than 100%. So 1/15th the cost. Implemented? No.

Regulation should be assessed on a cost benefit basis. Set and enforce standards that are not aimed at perfection. Excellent is adequate and much cheaper.

Attitude matters. The civil service should behave as assistant developers rather than party apparatchiks. Rule bound without understanding principles is unproductive. Over time, rules must change, yet they remain for years past their best before date. Bureaucrats are like the rest of us. Change is troubling. When others must bear the cost of their ineffectiveness, it should be addressed.

Regulation can easily become a way to spread influence. Objective is the idea with regulation. I think the application of regulation should meet that standard too.

Regulatory agencies can become a jobs program. If the agency sets its own rules and standards, is it smart to expect they will address problems that are too small to justify the effort and cost? If it increases their budget, count on it. Mission creep is not uniquely a military issue.

A sound economy covers up many inefficiencies. First glance today says that may not continue without interruption. When times are tougher you must first wring out inefficiencies. There is an opportunity not a problem to be addressed.

The takeaway

Without minimizing  the costs and proving the benefits, regulation  will always fail when money gets tight.

It can impose excessive and unnecessary costs in the interim.

Regulation of any kind should be thought through much more carefully than is the current case. If the cost/benefit equation doesn’t make sense, it is a regulation that is unnecessary or should be modified.

Effective managers find ways to add value. Regulation does not always do that.


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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