No Man is Safe While Congress is in Session

"No man's life, liberty, or property are safe while the Congress is in session."

The above quote easily could be extended to any government agency.  At no time has the sentiment been more true than today.

The venerable magazine The Economist took on the issue of America’s regulatory state early this year in an excellent cover story on “Over-regulated America.”[1]  Writing chiefly about our environmental regulations and after listing a few hilarious examples of other regulations, The Economist’s editors argue,

But red tape in America is no laughing matter.  The problem is not the rules that are self-evidently absurd.  It is the ones that sound reasonable on their own but impose a huge burden collectively.  America is meant to be the home of laissez-faire.  Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse.  Yet for some time America has been straying from this ideal.

The sea of red tape (or green tape as The Economist describes it) imposed at the Federal, state, and local levels has real-world consequences for our economy and our lives.  The Economist’s “Schumpeter” warns,

Is America fading?  It seems an odd thing to say about a country that so dominates the industries of the future…America has been gripped by worries about decline before, notably in the 1970s, only to roar back.  But this time it may be serious.[2]

In that column, “Schumpeter” quotes from a Harvard Business Review Special Report “Reinventing America.”  In a survey of Harvard Business School alumni, when deciding where to locate new or expanded businesses, the alumni choose the U.S. only 32 percent of the time.[3]

The Regulatory State and Small Business

In order for people to have an opportunity to climb the economic ladder, the private sector needs to be able to create jobs.  Employees of private industry outnumber government employees by a 5 to 1 ratio.[4]  Within private industry, it is small business that generates the bulk of new jobs, up to 65 percent of all new jobs, as calculated by the U.S. Small Business Administration.[5]  It turns out that the biggest threat to small business is government regulation.

How Regulations Destroy Jobs

From the other side, we often hear about how regulations are necessary to protect human health and safety and to protect the environment.  In fact, most regulation protects neither humans nor the environment, but rather, protects existing businesses from competition.

A classic example comes from Fairfax County, Virginia.  The curious case of John Thoburn offers a cautionary tale for anyone tempted to fight the powers that be.[6]  Mr. Thoburn made the mistake of continuing to operate a lawful establishment, a golf driving range,[7] after the county entered into that same line of business.  The county used all of its regulatory powers to harass and hound Mr. Thoburn out of business, at one point in 2001, throwing him in jail for weeks for refusing to comply with conflicting and nonsensical orders.[8]

More recently and closer to home is the saga of Minneapolis entrepreneur Kevin Vanderaa, foiled in his efforts to open a Cupcake store in St. Paul’s busy Grand Avenue commercial district.  His Achilles heel?  Parking regulations.[9]

Mr. Vanderaa fought for weeks over parking with the city’s Board of Zoning appeals, only to be done in by a local neighborhood association:  other merchants afraid he was stealing “their” parking.  In the end, the St. Paul City Council voted 5-2 against allowing the Cupcake store to open,[10] wiping out a potential $300,000 investment and 15-20 jobs in the city and an empty site continues to sit empty.

Mr. Vanderaa did not make it to the finish line, but Juliet Pries of San Francisco did.  As reported in the New York Times,[11] it took Ms. Pries nearly 2 years to open her shop, The Ice Cream Bar,[12] in the City-by-the-Bay.  The Times describes her ordeal,

Ms. Pries said it took two years to open the restaurant, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.

“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”

One wonders:  for every Juliet Pries who succeeds, how many would-be entrepreneurs give up, or do not even try?

The Regulatory Tide Rises

The lead editorial in the December 14, 2011 edition of the Wall Street Journal notes the explosion in “economically significant” regulation (a rule expected to cost more than $100 million a year to implement) during the Obama Administration.[13] 

For as much as we (rightfully) complain about tax rates and government spending, it is the regulatory state that provides the biggest obstacles to renewing the American economy.

Regulation does not merely mystify, annoy, and raise costs for businesses, it directly contributes to unemployment.  Clyde Wayne Crews and Ryan Young of the Competitive Enterprise Institute (CEI) wrote an opinion piece for the website Real Clear Markets, “Yes, Regulation Does Keep Unemployment High.”[14]  They write,

Regulations make hiring costlier and thus make jobs scarcer.  And regulatory uncertainty makes companies reluctant to hire employees they might not be able to afford down the road.

The authors cite an October 24, 2011 Gallup poll of small business owners that finds “complying with government regulations (22%) is the most important problem facing them today”.  Consumer confidence ranked a distant second, with consumer demand and credit at third and fourth, respectively.

Needs-Based Regulation

Phillip Howard of Common Good has some useful thoughts on the reforming regulatory state.  His essay[15] on the subject of “needs-based” regulation was reprinted in the December 3, 2011 edition of the Wall Street Journal.  Howard writes, “Americans instinctively know that it’s hard to invigorate a weak economy when almost any activity has regulatory risk.”

In the Wall Street Journal version of the piece,[16] Howard argues that,

America needs a radical regulatory overhaul, but wholesale deregulation is not the answer.  Most of us still want the government to set standards for things like clean air and work safety.  In place of today’s regulatory micromanagement, what we need is results-based regulation, with simpler rules tied to the outcomes they produce.

In the Journal, Howard recommends that regulatory detail be replaced with general principle:  regulators would have more authority and discretion but would be held accountable.  Complexity would be replaced with simplicity and rigidity with flexibility.  Transparency and accountability would be the key elements of a new regulatory approach.  Finally, Howard recommends that all regulations be subject to sunset provisions.  He cites the case of special education, which now consumes some 20 percent of the nation’s K-12 budget, while gifted children receive a mere ½ of one percent.

--Private Citizen

Notes:

[1] The Economist, February 18, 201, p. 9.

[2] Ibid., p. 71.

[3] “Choosing the United States,” Harvard Business Review, March 2012, p. 84.

[4] Bureau of Labor Statistics.  See http://www.bls.gov/news.release/empsit.t08.htm

[5] Reported by Carl Bialik in the Wall Street Journal, “Sizing Up the Small-Business Jobs Machine,” October 15, 2011.  See http://online.wsj.com/article/SB10001424052970203914304576630973840478808.html

[6] See http://www.foxnews.com/story/0,2933,5917,00.html.

[7] Golf Park at Hunters Mill.  http://www.huntermillgolf.com

[8] See http://freejohnthoburn.com/index.html

[9] “Cupcake's Grand plan crumbles; bakery scraps St. Paul site.”  St. Paul Pioneer Press, February 1, 2012.  See http://www.twincities.com/ci_19870475?IADID=Search-www.twincities.com-www.twincities.com

[10] “Cupcake's

Grand Avenue

plan shot down, again, over parking, “ St. Paul Pioneer Press, February 15, 2012.  See http://www.twincities.com/stpaul/ci_19974243?IADID=Search-www.twincities.com-www.twincities.com.

[11] “Before Ice Cream Shop Can Open, City’s Slow Churn,” New York Times, February 3, 2012.  See http://www.nytimes.com/2012/02/03/business/smallbusiness/before-ice-cream-shop-can-open-citys-slow-churn.html?scp=1&sq=before%20ice%20cream%20san%20francisco&st=cse

[12] See http://theicecreambarsf.com.

[13] http://cei.org/op-eds-articles/yes-regulation-does-keep-unemployment-high.  October 31, 2011.

[14] See http://online.wsj.com/article/SB10001424052970204770404577082920364818792.html?KEYWORDS=regulation. The Wall Street Journal, “Regulation for Dummies,” December 14, 2011.

[15] http://www.commongood.org/blog/entry/philip-k.-howard-on-the-need-for-results-based-regulation

[16] Howard, Phillip K., “Starting Over With Regulation:  Why are government rules so complex?  A guide to a radically simpler system,” The Wall Street Journal, December 3-4, 2011, page C2.