red-tape

To Help Businesses Thrive, Eliminate Red Tape

February 8, 2016 Posted by Liam Sigaud - No Comments

Business owners from around the state have one nearly-unanimous complaint: excessive regulation is killing innovation, costing jobs, and reducing growth.

Recently, as President Obama approached his final year in office, his administration announced thousands of new regulations likely to cost businesses more than $1 billion. Ranging from rules on nutritional labeling to the sale of e-cigarettes and the responsibilities of brokers, these rules will add to the existing 78,000 pages of convoluted federal regulations currently being imposed on businesses around the country. Since 1936, the number of pages in the Federal Register – where rules and regulations are compiled – has increased 29-fold, and a report by the Competitive Enterprise Institute estimates that the annual cost of federal regulation on businesses approaches $2 trillion – more than the size of Canada’s entire economy. That’s equivalent to $5,600 for every resident of the United States

“The regulatory state has grown under this administration seemingly without regard to the costs, practicality, or even legality, of rules pushed through by federal agencies,” says the President of the U.S. Chamber of Commerce, Thomas Donahue.

In January 2016, the U.S. Senate Committee on Homeland Security and Governmental Affairs released a report titled Direct from the Source: Understanding Regulation from the Inside Out, which states that “new workplace regulations and rules promulgated will harm businesses due to increased compliance costs and additional burdens placed on employers while failing to achieve the intended effects” and highlights the fact that “agencies frequently underestimate the implementation costs and broader effects…of rules and regulations.”

Misguided government policies that stifle businesses are nothing new. In 1978, testifying before Congress, Murray Weidenbaum—then the Director of the Center for the Study of American Business—said that “the impacts of government regulation are far deeper and far more widespread than are generally realized by the public,” and warned that ubiquitous regulatory barriers “needlessly [raise] the cost of production and hence the prices of the goods and services that we buy” while eliminating jobs and deterring investment. In 1981, in his first State of the Union address, Ronald Reagan noted that “government regulations impose an enormous burden on large and small businesses in America, discourage productivity, and contribute substantially to our current economic woes.”

But federal bureaucrats aren’t the only ones imposing burdensome regulations that stifle business growth. State policymakers in Maine, as well as municipal officials, have adopted thousands of laws, regulations, rules, and ordinances, many of which have been implemented in just the last few decades. In 2011, the Maine State Chamber of Commerce revealed that a survey of its members indicated that regulatory reform was a priority issue for the Maine business community; the regulatory environment had gone from a concern of 6% of respondents in 2003 to 27% in 2010.

According to the Maine Economic Growth Council, the overall cost of doing business in Maine was still 6.4% above the national average in 2012, despite a steady decline since 2000. And while high taxes, exorbitant energy costs, and the frequent inability to find qualified job applicants contribute substantially to a state’s economic vitality, so do it regulatory policies. In 2015, the Pacific Research Institute found that Maine’s small business regulations were the 6th most detrimental in the country, and noted that the absence of Right-to-Work legislation and the breadth of family leave opportunities are particularly onerous.

Harmful regulations have taken their toll on Maine’s economy. In 2013, Maine’s real gross state product increased by just 0.9 percent, while the United States’ GDP grew 2.2 percent. Though Maine’s small businesses employed about three-fifths (or 279,000) of the state’s private workforce in 2012, there were almost 1,000 fewer firms that employed 1-19 people in 2012 than there were in 2009. From 1997 to 2013, Maine’s share of the national economy fell from 0.36% to 0.33%, a decline of 8 percent.

A common complaint among business owners is that Maine lawmakers and bureaucrats have imposed additional rules on activities already regulated by the federal government. For instance, Congress and the Environmental Protect Agency have created thousands of regulations to safeguard the environment, reduce the public’s exposure to harmful chemicals, and ensure that waste is disposed of responsibly. Yet Maine lawmakers and the Department of Environmental Protection have passed hundreds of similar mandates, forcing business owners to navigate a complicated web of redundant (and sometimes contradictory) requirements.

Many areas of regulation consist of two or three layers, including municipal ordinances, state statutes, and federal laws. Building codes and food inspections, for instance, are often regulated at both the local and state levels. Restaurants in Portland must obtain licenses from both the city’s Public Health Division and the Department of Health and Human Services. Landlords in Rockland have to contend with both state laws and city ordinances relating to house disturbances. Waste management, as well as wildlife conservation, is guided by rules issued by the Maine Department of Environmental Protection, the Maine Department of Inland Fisheries and Wildlife, and the federal Environmental Protection Agency.

Maine’s prohibition against Sunday hunting (which even prevents hunting on one’s own private property) has a substantial indirect impact on our economy. According to a recent national survey, hunting expenditures in 2011 in Maine totaled $203 million. Of that, 50 percent were trip-related expenses like food, lodging, and transportation. The average spending per hunter was $565. A recent study found that nearly 2,000 jobs and more than $45 million in wages would be created if this outdated ban (which Maine shares with just nine other states) were lifted.

Occupational licensing requirements represent another form of needless regulation. A 2012 study by the Institute for Justice found that 38% of low-income occupations in Maine are licensed by the government. Residents seeking to enter these occupations can expect, on average, to pay $206 in fees and spend 226 days completing the requisite training. A few occupations in particular face significantly more burdensome entry requirements in Maine than in other states. For example, log scalers – who estimate the value of lumber – face no employment restrictions in any state except Maine and Idaho; each requires two exams, and Maine requires two years of experience. Similarly, Maine is one of only three states to license dietetic technicians, who plan and prepare nutritious meals. Its requirements are also the most onerous, requiring applicants to obtain 835 days of education.

Occupations that have little connection to health and safety should have fewer entry requirements; incompetence in those areas is likely to be innocuous and quickly dealt with through the free market. According to the Institute for Justice, for instance, Maine makes it more difficult to become a makeup artist, skin care specialist, or massage therapist than an emergency medical technician. The Concise Encyclopedia of Economics notes that, “Occupational regulation has limited consumer choice, raised consumer costs, increased practitioner income, limited practitioner mobility, and deprived the poor of adequate services—all without demonstrated improvements in the quality or safety of the licensed activities.”

Redundant or unnecessary paperwork – largely due to inadequate communication between state agencies – forces business owners to waste time and resources. The Portland Chamber of Commerce, testifying before the Maine Regulatory Fairness Board, described a frequent scenario: “An employer fills out a form required by agency A. Two weeks later the employer is asked for the same information, on a different form. The request may come from another agency, or even a different arm of the same agency. The employer is experiencing duplication, cost and frustration.” In 2011, the Office of Management and Budget of the U.S. Government estimated that 8.7 billion hours – or about a quarter of a trillion dollars – were spent annually filling out regulatory paperwork. To an extent, Governor LePage has succeeded in enhancing collaboration between agencies. In 2014, the Bangor Daily News reported that the Governor has “designated a ‘business development liaison’ in every state agency, which…has helped speed up communication between departments.”

When opening a business, predictability and consistency are essential. Entrepreneurs must have confidence that their efforts won’t be hindered by unexpected regulations or arbitrary decisions by government inspectors. Investors must be able to count on stable and modest government intervention in order to forecast consumer behavior and evaluate cost and risk. In 2012, the Major Economies Business Forum underscored that, “Business does not expect absolute regulatory certainty, but businesses everywhere have an interest in efficient, fair, and predictable regulatory and permitting schemes that protect the environment and ensure robust public input.”

One of the reforms that would benefit Maine businesses is to tie funding for regulatory agencies to their performance and the satisfaction of the businesses they serve — the Department of Environmental Protection, for instance, should be rewarded for increasing the speed with which permit applications are processed and approved, and the Office of Professional and Occupational Licensing should be incentivized to streamline the licensing process. Often, bureaucrats encounter the perverse incentive to increase regulations (and make government intervention more substantial) simply to “justify” their existence and convince lawmakers to continue funding their agency.

Unfortunately, many legislators and regulators seem to have embraced the view that government regulations, especially environmental regulations, are inviolate and should be immune to critical reconsideration. Instead, policymakers should periodically re-evaluate regulations based on new empirical data, feedback from businesses, and the evolving federal regulatory code. Old regulations aren’t necessarily useless, but they should routinely be re-examined to ensure that they continue to serve a definite purpose. Likewise, lawmakers should be cautious when enacting new regulations, and mindful of existing rules.