Prometheus Bound
Technology Mandates Halt Progress

by Fred L. Smith Jr.

As the intellectual legitimacy of command-and-control regulation withers away, apologists for the ancien régime have constructed a last defense: regulations spur technological innovation. They argue that tough regulatory standards force businesses to channel their entrepreneurial energies into the most productive enterprises. Requiring entrepreneurs to adopt energy-efficient and environmentally friendly technologies will make America more competitive. Regulate enough, they suggest, and we will all get rich.

Advocates of technology mandates recognize the efficiency gains produced by free markets, but they seem to view innovators as magicians seduced by the Dark Side. In other words, without proper direction, entrepreneurs will follow nonsustainable paths, but mandates can force them to adopt "appropriate" technologies. According to Vice President Al Gore, when developing regulatory standards, "We must pursue the rapid creation of environmentally appropriate technologies."

The automobile is always a target of technology mandates. We have the federal Corporate Average Fuel Economy standards that require car manufacturers to meet a fleet-weighted average fuel efficiency and a California law that mandates that a certain percentage of Zero Emissions Vehicles be sold, even if no one is buying. Until consumers and local businesses looked at the price tag, California regulators crowed about their "dramatic technology-forcing measures."

The miracles of mandated technology are no less fictional than the Schmoo. Mandating energy efficiency, for example, might not make society better-off. The use of "obsolescent" and "wasteful" technologies often reflects differential factor prices. Energy-inefficient technologies may be more cost-effective than energy-efficient technologies, especially if modernization costs are high or energy prices are low.

For instance, America’s early chairmaking industry used far more wood than its English competitors, while relying on less skilled labor. The reason: in America wood was plentiful and skilled labor was scarce. Producers selected the combination of technologies that made the best use of available resources. Forcing American producers to be more "wood efficient" would have cost the colonialists dearly.

As a know-it-all Future Farmer of America, I would lecture my Daddy on the gains possible from improved crop rotation, new hybrid seeds, and modern fertilizers and herbicides. He responded: "Son, I am not farming half as well as I know how to already!" The world is replete with "better" opportunities, but his task was to select the choice few that merited his scarce time and capital. For example, he was not eager to junk his old but still functioning tractor to save energy.

In recent times, technology mandates have imposed major costs on the auto industry. Detroit’s engineering and design talents were once devoted to meeting consumer demands; today, they largely satisfy the arbitrary demands of the Energy Department, the Environmental Protection Agency, and other federal agencies. This has weakened the auto industry by making it less responsive to domestic consumers and less competitive worldwide.

Even the claim that technology mandates lower the cost of meeting regulatory goals may be illusory because technological capability is fungible. For example, one major car company designed new aerodynamic headlights that would reduce fuel use. At the same time, consumers were demanding more trunk space on vehicles—a change that would have increased fuel use. The new headlight design allowed the car’s trunk space to increase while keeping constant the car’s fuel economy. If the new headlight design had been mandated to meet higher regulatory standards, consumer demands for additional trunk space would not have been met.

Regulations restrict options by banning certain activities and raising the costs of others. Technology increases options by creating new opportunities and lowering the costs of others. Technology mandates seek to square the circle. They seek to expand available choices by encouraging technology but then seek to restrict access to the opportunities thereby created. It is time to abandon this silliness.

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