WASHINGTON, DC – The unrestrained growth of the federal regulatory state impedes U.S. economic growth and disproportionately affects America’s small businesses and entrepreneurs, according to a new report released today by the American Council for Capital Formation Center for Policy Research.
The report – A Smart Regulatory Process for Entrepreneurs and Small Businesses – details ways that the burden of federal regulation falls unevenly on the small businesses that are major drivers of innovation, productivity, growth, and job creation in the U.S. economy. The cost of complying with regulations can dissuade would-be entrepreneurs from entering the marketplace, particularly the poor who have the hardest time meeting the financial burdens of regulation.
The report raises important questions about the full cost to the U.S. economy of regulation accumulation and the potential benefits of implementing policies to reduce regulatory barriers by making them smarter and more efficient. Unfortunately, of the thousands of new federal regulations issued each year, only a small percentage are aimed at reducing the regulatory burden on American businesses.
The report, authored by John Graham, dean of the Indiana University School of Public and Environmental Affairs; along with Indiana University’s Anna Williams and Keith Belton of the Pareto Policy Solutions; provides policymakers with recommendations for unraveling burdensome or simply redundant regulations and making sure new rules are targeted and provide measurable public benefits.
The report points out that opportunities to improve the regulatory system without reducing the public health benefits exist across the federal government and that even small changes can result in big improvements for small business owners.
Among the recommendations:
- Increase Congress’s ability to approve and repeal regulations deemed overly burdensome or redundant, including expanding the Congressional Review Act;
- Expand consultation with small business owners during the rule-writing process to better identify potential issues and barriers to participation prior to rules being finalized;
- Increase the budget and staffing for the Office of Management and Budget and the Office of Information and Regulatory Affairs to increase their ability to review proposed rules and evaluate the cost-benefit measure of individual rules before they are finalized.
Government regulations are important for protecting public health and safety, but the federal regulatory state has grown dramatically in both size and scope in recent years to the point that there are often multiple layers of government acting in an often uncoordinated and fragmented manner to regulate the same business activity.
According to the Small Business Administration, small businesses account for more than 99 percent of all firms, nearly two-thirds of net new private-sector jobs, and half of all private sector jobs. Unfortunately, the number of new businesses being formed each year has been on the decline in the United States since the 1970s. The World Economic Forum’s Global Competitiveness Report ranks the United States 51 out of 140 countries based on the level of government regulation.
In order to minimize the regulatory state’s potential harm to the small business sector policymakers need to better evaluate new regulations for their cost-effectiveness and transparency. Graham and the other authors argue that reducing the loss of productivity and economic activity caused by inefficient and redundant regulations will yield greater economic gains and have a positive effect on the broader national economy and competitiveness.
The authors hope the new report will assist policymakers in better evaluating the various regulatory improvement proposals currently being considered by Congress.