Consensus should prod efforts to cut red tape

Raymond Keating
Raymond Keating

The Business Roundtable recently released its latest CEO Economic Outlook Survey. In terms of where these executives of large companies see the United State economy going over the coming six months, one could call the outlook “more of the same.”

Jim McNerney — chairman of the Business Roundtable as well as chairman, president and chief executive officer of Boeing — put it this way: “In aggregate, our expectations are consistent with an economy that will continue along the path of steady, modest recovery into the first half of 2014.”

Regulation and red tape disproportionately affect small businesses. But CEOs of the Business Roundtable recently identified “regulation” as their top cost driver for the next six months. The American public also believes business regulation is harming the economy and business growth.

If the economy does continue along the path it’s been on since mid-2009, it must be acknowledged this recovery has been one of the worst on record in terms of economic growth and job creation.

What’s striking about the survey results is the top cost pressures the CEOs say face their businesses over the next six months.

No. 1 on the list is regulatory costs (39 percent). Labor costs come next (25 percent), followed by health care costs (21 percent). Material costs remain a distant fourth (8 percent).

When looking at the top three cost pressures, one has to add into the mix that regulations are a major cost factor when it comes to labor and health care costs. So, to varying degrees, 85 percent of CEOs in the Business Roundtable survey identified regulatory costs directly or indirectly as major cost pressures.

To the average consumer or employee, that might come as a surprise. But it’s certainly not to business owners and managers. Indeed, one of the great dangers of regulation is that the costs remain largely hidden from the average consumer.  Therefore, politicians have an incentive to take credit for fixing problems by imposing more regulations and mandates while businesses are left figuring out how to pay for the very real added costs of regulation.

And if cost pressures are a top concern for CEOs of large businesses, imagine how much worse it is for small and mid-size firms.

A 2010 study conducted by Nicole V. Crain and W. Mark Crain from Lafayette College for the U.S. Small Business Administration Office of Advocacy examined the effects of regulatory costs on small firms. The study found: “Small businesses, defined as firms employing fewer than 20 employees, bear the largest burden of federal regulations. As of 2008, small businesses face an annual regulatory cost of $10,585 per employee, which is 36 percent higher than the regulatory cost facing large firms (defined as firms with 500 or more employees).”

Regulatory costs have grown substantially since this study was published.

In general, small businesses have far fewer resources available to deal with large and rising regulatory costs.

In the end, increased regulatory costs mean reduced competition and choice, fewer jobs and higher prices in the marketplace.

The American public is beginning to figure this out. In a new survey conducted for the Small Business & Entrepreneurship Council Center for Regulatory Solutions (the full survey results will be released this month),

61 percent of Americans believe government regulations on businesses are more likely to “harm the economy by interfering with the free market, preventing businesses from growing and hiring new employees and increasing prices for consumers.”

CEOs of major companies, small business owners and consumers are all in agreement: excessive regulation is harmful.

This consensus should prod lawmakers into putting regulatory reform on the top of the nation’s agenda for the new year. If jobs, economic growth and U.S. competitiveness are important to our nation’s lawmakers and the White House, then regulatory restraint and relief will be a key policy priority.