Regulatory Reform

David Brooks comes to the defense of President Obama against critics who charge that the Obama tenure has imposed onerous regulations on business that are stifling hiring and dampening the economic recovery. Brooks seems to want to argue that this is not so, but he winds up arguing that, well, it actually is so, but that other administrations, including that of George W. Bush, were almost as bad. This is hardly the sort of defense Mr. Obama might have hoped for.

The question, though, is not which administration laid the costliest burden on business but rather which administration is going to alleviate that burden in order to stimulate businesses to resume hiring. When the question is put that way, the only possible answer is that it's either the Obama administration, a successor administration, or nobody.

If Mr. Obama is serious about creating jobs he could do worse than follow the advice given in an article at City Journal. Iain Murray, a vice president at the Competitive Enterprise Institute, and David Schoenbrod argue that reforming the regulations imposed on business would create thousands of jobs almost immediately:

Since 1996 the number of pages of regulations heaped upon our entrepreneurs has exploded from 67,000 to 81,405.

Each page (apart from the bizarre blank ones) contains a rule that imposes costs on businesses while creating more jobs for bureaucrats. Small businesses suffer disproportionately from these rules because their owners have to deal with compliance themselves (they usually give up and hire someone else to handle it when they reach about 30 employees). The costs of complying with regulations average $10,585 per employee, the SBA says — enough to throw a small firm of 20 employees with $200,000 in profits into just-breaking-even territory.

No wonder small businesses, the engine of the U.S. economy, have stalled in hiring.

Chamber of Commerce surveys show that over 60 percent of small businesses have no plans to hire in the next year, and the firms cite greater regulation or the threat of it as a major reason for their reluctance. In short, bureaucracy helps explain why businesses are making profits but not jobs. Substantially reducing the regulatory burden would go some way toward getting them to hire again.

Unfortunately, regulations are the raison d'etre of big government bureaucrats. A party philosophically infatuated with the idea of government as the guarantor of social and environmental justice, as is the Democrat party, will be loath to reduce this burden. It's simply not in a liberal's DNA. If, however, they were to act counter to their nature and actually agree to reform measures what might some of those measures look like? Here are some ideas from the City Journal piece:

For starters, Congress should appoint an annual bipartisan commission to comb through existing rules and identify those that need repeal. The commission would conduct its own analyses of the costs and benefits of regulations, as federal agencies’ figures are notoriously suspect and far from independent. Congress would then vote on the entire repeal package, which would prevent legislators from trading their votes for the preservation of their preferred rules.

Further, Congress should add a five-year sunset provision to all new regulations. If it later decides that rules are worth keeping, it can vote to extend them for another five years. Congress should also revitalize the concept of “enterprise zones,” areas where businesses are exempted from some regulations to allow them to establish themselves at reduced cost. Enterprise zones proved an effective way of getting local economies moving in the 1980s and 1990s.

Another useful tool would be a new small-business license for all start-ups and microbusinesses — firms with five or fewer employees — exempting them from new regulations for a five-year period. The federal government might consider, too, devolving many regulatory duties to the states, letting the nation’s basic constitutional units discover the effectiveness of rules through trial, error, and interstate competition.

Two British policies invite imitation in the United States. Congress could experiment with “regulatory budgeting,” a system currently being introduced in the United Kingdom, by approving a proposal of Democratic senator Mark Warner’s: for every new rule introduced, an old one of equivalent cost would have to be repealed.

Congress could also implement an American version of Britain’s new Red Tape Challenge, which enables citizens to air grievances about particular regulations. This could be done either in conjunction with the bipartisan commission or, as in the U.K., by a team of business leaders that reports back to the legislature.

All these ideas would provide significant regulatory relief. First, however, Congress should take responsibility for regulations, instead of surrendering rule-making to unaccountable government agencies.

These all seem like fine proposals, but in order to enact them voters have to elect to office people who are genuinely sympathetic to the plight of the small businessman. As it is, our political class, or at least those on left, treats small businessmen as if they were public enemies and makes it exceedingly hard for them to take on new hires while simultaneously turning a profit. Perhaps that will change next November.