Regulation that promotes safety and fair competition is generally accepted as helpful. Points of contention in the public derive, however, between those that feel more and more regulation can only increase safety and those that see ever increasing regulation as operationally “burdensome”. To those that lean toward to the former point of view, know that I will illustrate, shortly, examples of how regulation can obtrusively impact business and even your children. To those that lean toward the latter, recognize that without at least a degree of regulation, collusion, monopolies, and other unfair business practices would occur that similarly impact fair business and your children. In short, a tipping point in regulation does exist and it is time that “we the people” stepped up and adopted regulatory policies that promote safety and fair competition without stifling the inception and growth of smaller business in particular.
To just quickly provide examples of how regulation can stifle business and even promote unfair business practices that counter the better interests of society, let’s look at two industries seemingly worlds apart, but both now adversely changed forever due to regulation; namely, the banking industry and lemonade stands.
Few will weep for the banking industry after our recent economic collapse and the part they played in so liberally granting mortgage loans and/or for their part in the structure and offering of mortgage-bundled financial derivative products. However, new regulations, such as under Dodd-Frank, have undermined the small banking industry in ways not publicly discussed and have arguably resulted in a banking oligarchy of power amongst the bulge-bracket banks that helped institute the crisis to begin with. “Why?” you ask. “How?”
Know first that any new regulation represents a cost to the company. This is why regulations can be so much more detrimental to small business than large. While some degree of regulation certainly is necessary, every time a new regulation is added, a new expense in compliance is created for the company. While this “expense” may be equally distributed to all, often it is only large business with its economies of scale that can absorb the new costs. Thus, increased regulation often favors big business at the expense of small business… and ultimately, the consumer. This is the case with the new Dodd-Frank regulations on the small banking industry.
Smaller regional banks, for example, quite simply can’t afford the staffing requirements to justify the continuation of all their pervious mortgage finance services. Now, to refinance a mortgage, the small bank must sell their mortgage to one of the big bulge-bracket banks capable of supporting the compliance costs, such as Bank of America, J.P. Morgan, or Wells Fargo and in doing so, they sacrifice up 2/3rds of their profit to this de-facto oligarchy of banks. In short, regulatory intentions are always wonderful, but their expense alone can unwittingly change the landscape of an industry to one that is unjust and counters all sought benefits. This is one of the reasons real estate financing has not yet recovered. It is also a reason our small business sector has not joined our big business recover, as 92% of all small businesses utilize their real estate to finance their business.
Now let’s jump to another example, a more humorous and society damaging example of how just ridiculously oppressive the regulatory environment can be. Namely, the lemonade stand and how our police officers are now forced to approach our children to make sure they are properly licensed and in compliance with all business, code, insurance and FDA operational requirements to sit at the end of their driveways and dispense homemade lemonade in tiny paper cups. We’re stifling our children’s childhood, healthy habits and social development with our obsession for regulation.
For me, this is absurd… I am willing to risk my health on the homemade lemonade of a little girl or boy that shows the initiative to try and pass a hot Saturday afternoon and make a buck or two with their own lemonade stand. No one is forcing me to purchase. I don’t feel the need for government protection from their homemade lemonade and I think it sends a wrong message to our youth to squelch the play and initiative of those just wishing to exhibit a little bit of work ethic.
Perhaps your opinion will vary, but even so the lemonade stand example still illustrates how regulation can favor larger business, simply due to the greater proportional cost impact on small business. As such, I feel it is time our country considered a tiered policy approach as it portends to regulation and/or compliance requirements. We have a “progressive” tax system in this country because we recognize that those with the least resources need a larger portion of those resources to survive. I feel it is the same for small business when it comes to the imposed expenses of regulations. Let the neighborhood birdhouse manufacturer, hot-dog or lemonade stand, or lawn service start without all the headaches of OSHA, FDA, or even business registration requirements. Establish a tiered approach for regulations for business as they grow in size, their reach and impact to our communities expands, and their ability to afford additional regulations becomes manageable.
Our country was built off the hard labor of our forbearers who all shared the equal opportunity to come to our shores and claw their way up to a better life. Return that opportunity to our people by removing the regulatory obstacles we have imposed on the society and you will be removing the obstacles for more equal wealth distribution based on initiative, as opposed to the irrationally repressive regulations that, for example, require anyone wishing to drive their car in the evenings as a Taxi in New York City to first purchase a one million dollar taxi plaque to place on their vehicle. What could be a bigger inhibiter to business entry, competition, and the ability to grab your fair share than a regulation such as that?
Ponder it over and let me know your thoughts.