"Eliminating Red Tape for Small Business? Not Much."

Sydney M. Williams

Thought of the Day

“Eliminating Red Tape for Small Business? Not Much”

August 24, 2011

We should always be appreciative of small favors, even when the packaging is a little misleading. Yesterday the White House announced plans to scale back regulation on small businesses. Cass Sunstein of the OMB trumpeted the news in an op-ed in yesterday’s Wall Street Journal, “Washington Is Eliminating Red Tape.” According to the Journal, the Administration expects savings of more than $10 billion over five years. “The changes are welcome, but don’t appear to go far enough,” said Bill Kovacs, of the U.S. Chamber of Commerce. It would seem he is correct. A 2010 study by the Small Business Administration (SBA) concludes that the annual cost for the private sector to comply with current federal regulations exceeds $1.75 trillion. An annual savings of $2 billion is less than one tenth of one percent – something, but not much.

Investors.com reports that regulatory agencies have seen their combined budgets grow 16% since 2008, while GDP has grown 5%. According to a study by the Heritage Foundation, a conservative think tank, 75 major regulations have been enacted since Mr. Obama became President, costing $38 billion annually, nineteen times projected savings. That number does not include costs of adhering to the provisions of the Patient Protection and Affordable Care Act. Between October and March of this year, according to Brian Koenig writing in thenewamerican.com, 1,827 rulemaking procedures were completed, many of them minor, but fifteen of them major with combined annual costs of $5.8 billion, almost three times the annual savings announced with such fanfare by Mr. Sunstein yesterday.

What constitutes a small business depends on the line of business. For example, manufacturing, according to the SBA, can include a company with 1,500 employees. In retailing or services, small businesses sales should not exceed $21.5 million. There are about 30 million small businesses in America; they are critical to GDP, producing more than half of non-farm private GDP. According to the U.S. Department of Commerce, small businesses employ just over half of all private sector employees and have generated 64% of net new jobs over the past fifteen years.
The Administration’s plan, which would effectively roll back a mere 5% of the major regulations they have announced, would cover a “wide span” and is “unprecedentedly ambitious,” wrote Mr. Sunstein in his op-ed. But he was also quoted by Laura Meckler in the same issue of the Wall Street Journal (but in a different article) as saying the Administration is also applying stricter standards for new regulations. Will the real Mr. Sunstein please stand up?

Recently I received an e-mail from a friend who owns two small manufacturing plants, one in Missouri and the other in Wisconsin. In turn, he had received e-mails from two friends, both of whom are small manufacturers. None of the three are as large as a small division of General Electric. Their complaint had been that while the President purports to be concerned with the fate of small businesses and the jobs they create, he uses GE’s CEO, Jeffrey Immelt as his advisor on job creation. On July 25th, GE announced that they were planning to move their 115-year-old X-ray division from Waukesha, Wisconsin to Beijing. My friend writes: “In addition to moving the headquarters, the company will invest $2 billion in China and train more than 65 engineers and create six research centers. This is the same GE that made $5.1 billion in the United States last year, but paid no taxes – the same company that employs more people overseas than it does in the United States.”

My friend adds that he doesn’t care where GE takes their jobs. They must act in the best interest of all their constituents, including shareholders; he says he and these small business owners feel insulted by the example of big government and big business colluding in a patronizing manner and misleading the American people. Jeffrey Immelt and Warren Buffett are very accomplished and talented individuals, but they do not represent small business, nor are they familiar with the environment in which small business must operate today.

The costs of adhering to myriad regulations do not include the cost for businesses of dealing with the National Labor Relations Board (NLRB.) For example, by holding up Boeing’s plan to open a second assembly line in South Carolina, the NLRB is distinctly hampering employment. In response to a question as to whether he would interfere, the President demurred, saying that his hands are tied; the NLRB is an “independent agency.” That may well be true, but as Joe Nocera pointed out in yesterday’s New York Times: “…most of its top executives are his appointees.”

Do the Administration’s plans to eliminate or cut back hundreds of regulations signal a changing environment in Washington? We’ll see. Any diminution of red tape is welcome and a significant change would be very positive – but I wouldn’t bet on it.