Regulation a Drag on Economic Recovery
Washington, D.C. – Ongoing job losses in the manufacturing sector and the uphill climb to economic recovery have sparked new debate about `dealing with China` and what else should be done to ignite robust growth.
Economic indicators are pointing in a positive direction for growth during the next quarter and beyond. Consumer spending increased a strong 0.8 percent in August, followed by a 0.9 increase in July. Disposable income is up and the economy grew 3.3 percent in the second quarter. Business investment is on the rise, and corporate profits increased by 10.8% in the second quarter (profits grew on average 0.2% over the previous five quarters).
But, digging out of the current recession has not been easy. While the economic recovery package signed by President Bush provided tax relief and other incentives for small businesses, spiking health coverage costs alone have claimed a good chunk of those extra resources for many firms.
Federal regulation continues to drag down the potential and profits of small businesses. When economic activity slows and sales are down, the regulatory drag is even more severe.
The U.S. Small Business Administration (SBA) estimates per-employee regulatory costs amount to $7,000 for small firms. Now reaching $860 billion, the U.S. regulatory burden exceeds the gross domestic product (GDP) of Canada.
Regulatory costs siphon resources from productive investment and job creation. And business owners are becoming increasingly aware that they are hurting their ability to compete in the global marketplace.
For the labor-intensive manufacturing sector, the regulatory imbalance with our chief global competitors is quite vast. It costs $1,200 to create a new manufacturing job in China, for example, compared to $26,000 in the U.S., according to economist Larry Kudlow.
So while our elected officials are busy `getting tough` with the Chinese in regards to currency issues, what is being done to ease the roaring spigot of regulation that adds to the competitive woes of U.S. businesses?
`Streamlining regulations` is offered as a key part of President Bush’s Six-Point Economic Plan. It’s certainly good news that the Administration aims to simplify and streamline regulations. However, the directive doesn’t appear to be slowing the outflow of new regulations showing up in the Federal Register.
According to the Cato Institute, there were 4,187 new regulations in the pipeline at various stages of completion as of July 2002. Congress continues to pass laws accompanied by vague language, which are often interpreted with regulatory gusto by federal agencies. In response to the war on terror, the new Office of Homeland Security has issued hundreds of new regulations covering everything from food safety and labeling, transportation, financial transactions and travel. Obviously there are many small businesses represented in these industries.
Thankfully, some very determined individuals in Washington are working vigorously to ease the burden of these new rules on small business. The Small Business Administration’s (SBA’s) Office of Advocacy is making sure that federal agencies are treating small businesses fairly before new regulations are adopted.
Thomas Sullivan, Chief Counsel for Advocacy, has established an aggressive procedure for letting agencies know they must follow specific statutory steps before proposing new regulations that impact small businesses.
Sullivan’s office also developed a `Regulatory Alerts` feature on the Office of Advocacy’s website. It posts regulations that are under consideration by the government, and lets small business know where to send comments (about how a proposed regulation will impact their business) and deadlines for submitting this important information.
Sullivan says President Bush gets the credit for making federal agencies take the concerns of small business more seriously. He also reports there’s still much room for improvement to ensure full agency compliance with laws that protect small firms in the rule-making process.
`In the year since President Bush acted on his pledge to tear down regulatory barriers to job creation for small business by signing E.O. 13272, agencies have improved their record. But, greater compliance across all agencies is clearly needed. We expect to see more widespread compliance as we complete training of the agencies, as called for by the President,` he said. (E.O. 13272 instructed federal agencies to comply with laws that protect small firms when they develop new regulations.
Yet, many continue to acknowledge that government continues to have the upper hand on the regulatory front.
`The bureaucracy is winning,` said Rep. Charles Gonzalez (D-TX) during a congressional hearing I testified at this summer on the issue of the Office and Management’s (OMB’s) inability to get government cooperation on identifying a `small business point of contact` within each federal agency.
The Small Business Paperwork Relief Act of 2002 requires each agency to designate a contact to help small businesses understand and comply with federal regulations. The legislation also instructs the OMB to compile a central repository of all regulations and paperwork that small businesses are required to comply with. Neither effort is complete.
While `regulating the regulators` will marginally help to keep new government burdens at bay, greatly slowing the pace of regulation and reforming outdated rules are key to sustaining U.S. competitiveness and entrepreneurship. Treating our businesses more fairly at home, will better prepare them to compete abroad.
Karen Kerrigan is chair and founder of the Small Business Survival Committee.
