Subscribe to Making Rain by Email

Archive for the “Regulation Nation” Category

The Governors Inaugural CeremonyHave you all heard about President Obama’s new strategy for destroying ISIS?  His plan is simply to declare ISIS a small business and enroll them in Obamacare.

Just kidding.  (Kinda.)  Nevertheless, it is to be noted that the rate of new business creation in America is falling steadily.  A recent study by Nobel Laureate Edward Prescott of Arizona State University and his colleague Lee Ohanian of UCLA puts the blame for this trend squarely on overregulation.  (WSJ, Feb. 3, 2014)

Prescott and Ohanian report the creation rate of new businesses was down 28% in the most recent year of data (2011), but annecdotal evidence is that the decline continues apace.  And this is not just in the heavily unionized, overtaxed states like California, New York, and Illinois.  It is occurring even in Texas.  Even in North Dakota. Even in Florida.  In all U.S. states entrepreneurs say economic policy is the causitive problem.  To quote Prescott and Ohanian, “Surveys show that entrepreneurs report being hamstrung by difficulties in finding skilled workers, by a complex tax code that penalizes small business, by regulations that raise the costs of doing business and by difficulties in obtaining financing.”

Consider the fact that creative small enterprises are being forced to shed employees and larger ones will increasingly move heaven and earth to mechanize and replace lower-paid workers—or, more likely, to leave the U.S. altogether through inversions or simply outsourcing even their core functions.  This is not good for employees.  This is not good for GDP. This is not good for the innate optimism so crucial to the small business psyche.  And it is a looming Gotterdamerung for entrepreneurship.

Regulatory hubris has become endemic and de rigueur across our governmental bureaucracies—from the IRS, to the Energy Department, to the VA.  Take Obamacare, the most egregious force of overreach in the tsunami of regulation presently sweeping all of us before it.

daily-news-tycoon-mort-zuckerman-mulls-a-run-for-new-york-senateA new report from think tank American Action Forum reports that the Affordable Care Act has already eliminated 350,000 jobs in small business (defined as an enterprise that employs 20-99 people) removing at least $27 billion a year in wages and compliance cost from the economy.  (The Hill, Sam Baker, 10/10/12)  This is vastly unfair to our employees, as well as to entrepreneurs.  Mort Zuckerman recently commented in a WSJ op-ed (July 13, 2014) on the damage Obamacare already has wrought to our employees.  He says, “Many employers cut workers’ hours to avoid the ACA’s mandate to provide health insurance to anyone working 30 hours or more per week….The unintended consequence of President Obama’s signature legislation?  Fewer full-time workers.  In many cases two people are working the same number of hours that one had previously worked.”  These were the very people Obamacare was supposed to help.

The disincentives to take the risk to grow an entrepreneurial company past its inception are obvious.  Regulatory demands have become boulders in the path of entrepreneurial growth.  Sure, you might eventually become Microsoft or Apple, but, oh, the risks of getting past first base are becoming fearsome indeed.

To cite just one entrepreneurial vertical that has already been overtly damaged by regulatory overreach, particularly Obamacare, look no further than the medical device industry.  The U.S. is still rated the number one country for medical device innovation, but that may change radically and very soon.  Note the article in the WSJ on Thursday, October 2, 2014 by Dr. Scott Atlas of Stanford’s Hoover Institution titled, “Obamacare’s Anti-Innovation Effect.”  Atlas notes that the non-partisan Congressional Budget Office estimates new Obamacare regulations and taxes alone will cost the medical device industry $500 billion in the next ten years to pay for Medicaid expansion and insurance subsidies, resulting in a mass exodus of R & D centers and jobs overseas.  Furthermore, because of layers of regulation, it now takes over 31 months for even low to moderate risk devices to be approved (as opposed to seven months in Europe.)

107642Well, enough of this dire jeremiad.  I must get back to solving my own profit and payroll conundrums.  However, note what investment banker Ken Langone, co-founder of Home Depot, recently stated on CNBC about government going way overboard on regulation, creating a hostile environment (“You didn’t build that!”) for business in general.  He says,  “We are in a period of intense and unreasonable regulation, and we are seeing the fruits of that environment.  We have to accept the fact that what’s going on today doesn’t come without cost, and the cost is economic growth.”   Thanks, Ken

Comments 4 Comments »

Corporate Rain International on Facebook