Small Businesses Aren't Concerned About Regulations, So Why is Washington?

The headline for next week's edition of The Economist is "Over-regulated America," with the subtitle "The home of laissez faire is being suffocated by excessive and badly written legislation."

Sounds dramatic, but in reality the only things getting "suffocated" here are the facts about regulations. To be fair, this article does recognize (as few tend to do) that both parties in the U.S. are responsible for the growth of regulations -- this is important to remember, but this falls short of achieving genuine balance given how consistently this piece goes on to misrepresent the relative weight of costs versus benefits of public oversight.

Take this passage, for example:

"A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is."

Well, The Economist is right about one thing: it is a wonder that the jobless rate isn't higher today -- but that has a lot more to due with the fact that Congress seems physically incapable of passing the fiscal stimulus measures that we know are needed to make a real dent in the unemployment rate, and less to due with regulatory over-reaching.

And don't take my word for it -- as a Gallup poll of small business owners revealed earlier this week, the number 1, number 2, and number 3 most common reasons why small businesses are not hiring all have to do with insufficient consumer demand (which, as readers of this blog certainly know, the public sector is totally equipped to boost through investment and direct spending). Worries about "government regulation," meanwhile, ranked in at number 6.

But this is not my favorite poll for showing the relative insignificance of regulations to job growth. That would be the poll conducted by the Chamber of Commerce itself just last summer: 

When asked to prioritize factors discouraging more hiring, "too much regulation" registered as the highest priority for a grand total of 8 percent of small business, and only the second highest priority for another 15 percent. I suppose we could have a legitimate debate about the meaning of "economic uncertainty," which came in at number 1, but it seems clear to me that uncertainty about consumer demand is most likely the key factor here (and for what it's worth, one of the most comprehensive analyses of this topic, conducted by EPI's Larry Mishel, confirms that suppressed consumer demand is the main macroeconomic factor holding back job creation).

Yes, there are costs associated with public regulations (just as there are many benefits), and we should have a sober conversation about how they affect the balance sheets of certain businesses. But it's absurd to obsess over the non-crisis of regulatory over-reach when there's a very real crisis of unemployment still at hand.

Comments

[Douglas Tooley]

The 40% or so premium on wages going to government 'benefits' via payroll taxes, including Social Security, Medicare, Workmen's Comp and Unemployment Insurance is a pretty good deal for an employer - if you are making a profit. If you are losing money for any reason, including Wall Street malfeasance, it becomes a huge burden.

This economic fact should be considered in the context of profit sharing arrangements with **partial** employee owners. Profit sharing has the benefit of reducing wage costs automatically during downturns, as well as providing an economic incentive for performance - the 'bottom line' here is that everybody makes less money, but no one, necessarily, loses their job - nor is threatened by same.

Relative percentages of worker vs. management control are a worthy subject of debate - academic and professional - just as too are discussions about public vs. private ownership of the economy.

For the sake of argument let me throw out a number for a desirable portion of employee income sourced from profit sharing.

How about 40%?

That said, let's also talk about the failure of the regulation as it applies to corporates considering energy production - as evidenced by the recent, unprosecuted, Enron conspiracy. Any private corporate body that did business with Enron should have lost their complete ownership and that utility been converted into public ownership. Wouldn't 40% public ownership of the economy be about right, as opposed to a corrupt regulatory system?

After all, **main street** capitalism is working very well for the Chinese, is it not? Human rights are an issue, and though we like to see ourselves as much more tolerant of individual actions try running a business in this country as a true political independent and watch what the Federal Government, with group and individual sovereign immunity, does to you.

The sad fact is that the business regulatory model of serving the social good is corrupt to the core and that we are in fact a totalitarian 'bi-cameral' communist state subject to every ill so well presented by Ronald Reagan as he continued his California invented 'purging' of responsible lefties from national academia starting in 1980 - notably including the future lobbyist Jack Abramoff working in Massachusetts.

This is not to condemn regulation, which often benefits the large corporation even while they verbally attack same. But when regulation as an excuse to stifle competition for the most connected players at the expense of the independent and competitive, what, exactly, are we as a nation?

[Neil Das]

You're absolutely correct in stating that consumer demand is the most influential roadblock to businesses at present. We have companies with lots of extra cash and in many cases do not have the capacity to match demand. Doesn't that beg for investment and expansion? For the past couple years it has not, probably because expansion is a high-risk endeavor in the face of a potential double-dip recession. Is this the worst I'm going to see? That's the question business owners consider when weighing expansion against a current economic downturn. You want to be the firm most ready to satisfy increasing consumer demand - but the question is timing.

Nevertheless, that doesn't mean that bad regulation should be ignored. We have a large government - they can surely focus on more than one thing at a time. That being said, people complaining about the 10% 'penalty' on every employee hired because of regulation are not looking at the big picture. That 10% isn't for shits and giggles, it actually goes toward actual goods and services (mostly along the lines of insurance) that a balanced, stable society needs. How do we get a stable society and economy? If you lose your job, you should be able to have some time and money to look for another job. If people get sick, they should be able to get healthcare instead of dying or overloading hospitals. In your workplace, you shouldn't be afraid that you'll get killed because of damaged equipment or a dangerous environment. When you eat at your cafeteria, you should be somewhat confident that you will not get a disease and die. When you've worked in our society for 50 years, you should not find yourself with no money, no work, and starve to death. You shouldn't be afraid of management abusing you or harming you.

Sure, business may pay $10,000 above salary per employee, but it is to make sure that none of the bad things mentioned occur. It is most definitely true that the $10,000 is not spent in the most efficient manner - and that is where the work needs to be done - especially with overlap of services and over/under allocation. Improvement is the key - not a fanatical war against the fact that people want standards in a society.