May 29, 2014 - 3:00pm

How Excessive Regulations Stifle Small Businesses

Senior Editor, Digital Content

According to revised GDP numbers, instead of being nearly flat, the economy actually shrank by 1% in the first quarter of 2014. Growth is expected to bounce back later in the year, but ever since the end of the Great Recession, the economy has struggled to produce enough economic growth to return to full employment.

What’s holding back our economy from growing faster so it can produce more jobs and higher wages?

John Dearie, Executive Vice President at the Financial Services Forum and co-author of Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, thinks that the vast amount regulations facing entrepreneurs plays a big role [emphasis mine]:

At roundtables we conducted with entrepreneurs in 12 cities across the United States, I and a colleague, Courtney Geduldig, heard a number of major themes everywhere we went—remarkable, given the size and diversity of the U.S. economy. One recurring message is that regulatory burden, complexity, and uncertainty is undermining entrepreneurs’ ability to successfully launch new businesses, expand, and create jobs.

“They can be federal, state, or local—and sometimes they conflict,” Alan Blake of Austin-based Yorktown Technologies told us. “Identifying, understanding, and complying with all these regulations is a huge loss of productivity…Entrepreneurs don’t have the resources to hire an in-house counsel or a chief financial officer. They're trying to do all of it themselves.”

“It’s as if the politicians and regulators in Washington want me to fail—and spend all their time thinking up new ways to ensure that I do,” said Sharon Delay, founder of Adjunct Solutions in Westerville, Ohio. “Quit throwing ridiculous roadblocks in front of me! You either want me to be the engine of the economy or you don’t!”

See what Sidecar and other transportation disruptors are going through.

Dearie continues:

To be sure, regulation is essential to market economies. It establishes the rules of competition, ensures a level playing field, governs participants’ behavior, and protects consumers, public health and safety, private property, and environmental resources.

But regulation is not free, or without consequence. Regulation imposes costs—costs borne principally by businesses.

One cost is less job creation. Andy Puzder, CEO of CKE Restaurants, owner of the Carl’s Jr. and Hardee’s burger chains, said that the “unnavigable regulatory maze” has made it hard to “create those business models that justify investing to create more jobs.”

CKE Restaurants CEO Andy Puzder on the Anti-Business Obama Administration

Richard Fisher, Dallas Fed president, would likely nod his head in agreement with both Dearie and Puzder. He recently told Fox Business that the growing regulatory mountain “keeps building on itself. And by continuing to do so, it’s scaring job creation away.”

But there's hope. There are places that not only get that excessive regulation is stifling but are doing something about it. Dallas and St. Louis topped U.S. Chamber of Commerce Foundation’s 2014 Regulatory Climate Index which measures the efficiency of regulations effecting new small businesses in 10 major U.S. cities. With the Index, other cities can learn what’s working from these two cities. In addition, as U.S. Chamber Senior Vice President Bill Kovacs wrote recently, President Obama is "firmly positioned on the side of streamlining the federal permitting process."

Finally, there’s Fox Business’ Stuart Varney who in a commentary on the extent that regulations have encroached into peoples’ lives remains an optimist, saying “All-government, all the time is on the way out. The sooner it leaves us alone, the better.”

We just have a lot of work to do to get us there.

[H/t memeorandum]

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

More Articles On: 

About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.