Businesses Need to Push for Less Regulation
It will come as no surprise to those not in government that government regulation adversely affects small business.
Scott Shane notes in an Internet post this week that World Bank economists found that entrepreneurs create fewer businesses in countries with regulations that make starting companies more difficult.
On the flip side, reducing regulation enhances the performance of small companies. For example, Shane points to Mexico, where researchers found that efforts to simplify the new business formation process boosted small business employment in that country by nearly 3 percent.
Shane, an author and A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University, then turns to Nicole and Mark Crain, of Lafayette University, to explain the four ways that regulation hurts small business.
First, regulatory compliance exerts a disproportionately large burden on small companies because the fixed costs of adhering to rules can be spread out over more revenue in large firms than in small ones.
Crain and Crain estimate the per employee cost of complying with federal regulations at $10,585 for businesses with fewer than 20 employees, but only $7,755 for businesses with more than 499 workers.
Second, government regulations make small businesses less competitive against foreign competition. As Crain and Crain explain, government regulations create "inefficiencies in the structure of American enterprises," adversely affecting "the international competitiveness of domestically produced American products and services," and leading to "the relocation of production facilities to less regulated countries."
Third, adding regulations creates uncertainty, which keeps small business owners from investing and hiring. Because few business owners can predict the scope or impact of new regulations, they often delay buying capital equipment or adding workers as they wait to see the impact.
Fourth, new regulations often have unintended consequences. Shane asks us to consider the new health care law, which requires businesses to file 1099 forms for all payments to a single payee exceeding $600 per year beginning in 2012.
The effort to increase health insurance coverage has resulted in an unrelated tax filing that imposes heavy compliance costs on small business owners, an outcome that Shane says surprised many in Congress who voted to pass the law.
Unfortunately, the United States does not compare well with many industrialized nations on the dimension of small business regulation.
In fact, the Organization for Economic Cooperation and Development found that the United States has higher regulatory barriers to entrepreneurship, greater administrative burdens on small business owners and higher barriers to competition than a number of other industrialized countries.
Shane says the regulatory burdens on U.S. small business are getting worse. Both the World Bank and the Global Entrepreneurship Monitor report that entrepreneurs faced more startup red tape in 2007 than in 2003.
American small businesses are now being adversely affected by two massive new laws: the Patient Protection and Affordable Care Act and Dodd-Frank Wall Street Reform and Consumer Protection Act.
Small business owners don't believe that either bill will help them, which prompts Shane to close by pointing out that U.S. leaders are always talking about reducing the regulatory burden. But, so far, they haven't backed up their words with actions.
Small business drives the economy in Moore County and the rest of the country. One would think that entrepreneurs' voices should be heard in the nation's capital.
Contact Ted Natt at firstname.lastname@example.org.
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