Massive Regulation Hurts Small Business

A study done by the Small Business Administration (SBA) said that in 2010 the annual cost of Federal regulations was $1.75 trillion.[1] Our annual GDP is over $15 trillion, meaning the cost of these regulations amounts to about 11.5% of GDP.[2] That’s a lot of money. Think of the impact on our struggling economy if we were able to cut those costs in half.

Why do regulations have a cost?

When government creates a rule (regulation), they often have to hire more public sector workers to enforce it. This expands government and pulls more people out of the private sector where goods and services are produced.

The other major cost is that businesses are forced to comply in order to avoid breaking the law. Often the new rule means a business has to hire new staff members to make sure the business is following the rules. The business has to redirect money it was planning to spend on creating goods and services for its customers towards people who make sure they follow rules.

For example, the industry where I work is financial services. There are thousands of rules that financial professionals are forced to follow. Given the number of rules, no one can remember them all, so financial service firms are forced to hire staff who specialize in memorizing and interpreting the rules of the regulators.

The addition of needed staff members for both public and private sectors is one of the many costs associated with business regulations. The disproportionate impact on small business is often not discussed.

Think of it. Who is in a better position to absorb the cost of massive regulation—large business or small business? Of course, the answer is large business because they have more money, scale, and staff to deal with these issues.

So what ends up happening?

The cost of small business regulations are a huge barrier for owners. As a result, small businesses suffer, and aren’t as competitive as large businesses. In many cases the small business owner either has to close, goes bankrupt, or the large business acquires the struggling small business. Therefore, increased business regulations guarantee more large business!

Large business isn’t the problem. There will always be different size companies within an economy. As long as businesses and their trading partners (customers) believe they are receiving greater or equal value for what they give up, everyone prospers, jobs are created, and True Capitalism is practiced.

The problem is that regulations adversely affect small businesses more than large businesses. As a result, large businesses are rewarded as their competition shrinks.  Therefore, highly regulated environments unfairly reward large businesses.

Regulations are not great for consumers either. Fewer competitors in a business sector usually results in increased prices.

Small business makes up 99.7% of all employer firms and creates more than half of GDP growth.[3] When government over regulates, American small business owners and their staff suffer. Because small business is the backbone of this country, when American small business suffers our whole economy suffers.

What can be done?

For starters, put a freeze on new business regulations. This will give businesses a renewed sense of stability. They will no longer have to fear some new regulation coming down the bureaucratic pipeline and adversely impacting their business. They will be willing to risk their capital (money) again!

Second, we need leadership willing to review and assess the value of existing business regulations. If the cost greatly outweighs the value, the regulation should be removed.

Come November 2012, elect candidates who have a track record of cutting wasteful regulation—-not adding to it. This will be one of the most important topics in the presidential campaign, as each candidate must understand how small business drives the economy.

Make certain YOU ARE SURE the candidates you vote for have what it takes to go all the way with cutting regulations that don’t add up. Our small businesses and economy depend on it.