You’ll often hear business figures talking about the problem of regulation, something along the lines of “regulations threaten growth!” But without hearing specific examples, it can be pretty easy to dismiss the problem.
Regulations aren’t that bad, surely! But in reality, they are that bad, and have the potential to be even worse.
A Small Business Administration study found that “the annual cost of federal regulations in the United States increased to more than $1.75 trillion in 2008.” And you can bet that number has not been going down since then. That is $1.75 trillion that businesses must spend on compliance issues, not on investment, hiring, and growth.
That does not even include the cost of the bureaucracies overseeing these mountains of regulation! The regulations themselves keep money out of the productive private sector, and then the taxes required to pay for regulators, inspectors, and commissions further hurt taxpayers.
And the SBA study points out that the cost is greatest on small businesses. Firms with fewer than 20 employees — the vast majority of American businesses — face a 40 percent premium in regulatory costs per employee compared to larger businesses.
This is because while some regulations scale with the size of the business, others are fixed costs that cost the same to a small, one-person sole proprietorship as to a 10,000-employee corporation.
If politicians are really serious about small business, like they all claim, then they would try to roll back the regulatory burden.
But not only is the regulatory burden not shrinking, it is growing — quickly. Bloomberg reports that “pending rules in the White House pipeline would position a re-elected President Barack Obama to outpace his predecessor with second-term rulemaking, according to a review of regulatory filings. Obama has delayed until after the election” a number of expensive new regulations.
It seems fairly clear that President Obama’s goal is to turn the United States into a European-style social democracy, with regulatory control over more and more of Americans’ lives — and the big, choking government that entails.
Government-run healthcare and extensive environmental legislation is an expensive start, but the real trouble comes when we look at European-style labor laws.
I have some personal experience with European labor regulations from offices we opened in France, Germany, and the United Kingdom during my software days — and I don’t want to repeat those days ever again.
We found out it was impossible to improve your work force because anyone you hired was essentially locked into their job. Firing someone who didn’t work out required two years’ severance pay.
And that’s not an isolated experience. Look at the Wall Street Journal’s latest editorial about “Employment, Italian Style.” The list of labor regulations is laughable — until you realize it’s all real; painfully real for small business entrepreneurs:
- High social security costs.
- Difficulty dismissing and replacing workers.
- Time-consuming assessments once you hit 11 employees.
- National unions at 16 employees.
- Mandatory disability quotas.
- “Gender dynamics” reports.
- Government-subsidized hiring for favored groups.
- And perhaps most ridiculously, thanks to a new ruling from the Court of Justice of the European Union, additional vacation time for workers who get sick on their (apparently inadequate) state-guaranteed 4-to-6 week vacation leave.
All these factors work together to limit the freedom of an entrepreneur to create a successful business and pursue his or her own vision.
We need to halt the slide toward a regulatory state while we still can. Enough is enough, and the small business entrepreneur, the lifeblood of the American economy, cannot afford any more.
Fran Tarkenton is the Founder and CEO of OneMoreCustomer.com, a web resource for Small Business Advocacy and Education. After his Hall of Fame football career, Fran had a successful career in television and then turned to business. He has founded and built more than 20 successful companies and now spends his time coaching aspiring entrepreneurs.
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