Regulations cost small businesses, the heart of US economy, the most
The health of the American economy can easily be measured by the health of American businesses — especially the rate at which people like you and me start new ones. This simple metric shows whether the spirit of innovation and entrepreneurship is alive in well in our country.
It has been for most of our history. Take my father and uncle, for example. In 1973, they had their own American dream: Starting a business in Stratford, Wisc. and helping their community by employing hundreds of their friends and neighbors. Today, the business they started more than 40 years ago is now an important part of north-central Wisconsin’s economy.
But now the spirit of entrepreneurship appears to be dying.
For the first time since researchers began documenting it 35 years ago, more American businesses are closing than opening. Even economically depressed Italy — where growth has fallen 2%over the past four years — has a faster rate of business start-ups. America has now fallen out of the top 10 countries when it comes to the creation of new companies.
What explains these two terrifying trends — the death of so many businesses and the dearth of new ones? There are numerous factors, but one of the most obvious is America’s ever-growing regulatory state.
For decades, American politicians — both Republican and Democrat — have wrapped businesses in suffocating amounts of red tape. Federal regulations now cost the American economy nearly $1.9 trillion every year — more than 10% of our nation’s GDP. Add in state and local regulations, and that total is even higher.
Not surprisingly, the rates of business start-ups and deaths have changed for the worse as regulatory costs have grown. No wonder: Anyone who wants to stay in business has to keep finding more money to pay for higher costs, while anyone who wants to start a new business has to clear financial and legal barriers that get taller every year. The founder of Subway recently remarked that his company “would not exist” if today’s regulatory burden had existed when he started it in the 1960s.
Simply look at the past few years to see how the regulatory state has grown. Between 2009 and 2013, the federal government added $494 billion in regulatory costs to the American economy. The highlight was 2012, when President Obama and his executive agencies published over $236 billion in new costs. As for 2014, the federal government announced over 79,000 pages of new regulations, costing a total of $181.5 billion.
That’s equivalent to 3.5 million median family incomes. But it isn’t flowing to families through new jobs and higher wages — it’s lost on lawyers, paperwork and other compliance costs.
And it isn’t just Wall Street titans or multinational companies like Walmart that are hit with this ever-growing price tag. Large companies are actually paying less per employee — $7,700 — than small businesses, which pay an average of nearly $12,000 in regulatory costs for every person to whom they provide a paycheck.
This helps explain why businesses are dying faster than they’re starting. Small businesses struggle to cope with the higher costs, both in time and money, associated with regulations — they have to raise prices, slash growth plans, cut wages and benefits or lay off workers. And when they still can’t afford to operate, many businesses are forced to close.
As this happens, the economy sheds number of companies that started out small and could have gone big. The real victims are the Americans for whom such businesses could have created job opportunities and prosperity.
But even worse is the situation that an increasing number of potential entrepreneurs find themselves in: Looking at the cost of starting a new business and deciding it isn’t worth it. America’s economy didn’t become the envy of the world by keeping people on the economy’s sidelines, and it certainly won’t keep that mantle if politicians don’t end their obsession with over-regulation.
Luke Hilgemann is the CEO of Americans for Prosperity .
In addition to its own editorials, USA TODAY publishes diverse opinions from outside writers, including our Board of Contributors. To read more columns like this, go to the Opinion front page or sign up for the daily Opinion e-mail newsletter.
This entry passed through the Full-Text RSS service – if this is your content and you’re reading it on someone else’s site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.
Powered by WPeMatico