To encourage business, America needs to cut
red tape.
Worldwide, the United States is known as the home of laissez-faire. But
at the home front the country is being suffocated by excessive and
badly-written laws. The list of business regulations in America is endless: Dodd-Frank law of 2010, Sarbanes-Oxley Act,
Clean Air Act and Patient Protection and Affordable Care Act (otherwise known
as Obamacare), among others (Gattuso & Katz, 2013).
The problem here is that, while the rules may sound reasonable on their
own, they do impose huge burden collectively on American businesses. Ideally,
unlike the Europeans whose lives have long been circumscribed by meddling
governments and politicians from Brussels, America is meant to be the home of
laissez-faire where people are free to make their own choices, whether those
choices are good or bad. From ever
indication, America appeared to have strayed from this ideal within the last decade
(The Economist, 2012).
For instance, the aim of the Dodd-Frank law of 2010 is to prevent another
financial crisis – a noble goal. While the strategy for implementing this law
is simple, it contain 848 pages (covering such issues as improving
transparency, stopping banks from taking excessive risks, and putting an end to
“too big to fail” syndrome by authorizing regulators to seize any big,
tottering financial firm and wind it down) and hence is about 23 times longer
than the Glass-Steagall , the reform
that followed the Wall Street Crash of 1929. This makes it too complex to understand and explained why those few
people who have read it struggle to make sense of it. Consider the “Volker
rule”, which is one bit of it that is aimed at curbing risky proprietary
trading by banks. Its 383 questions that breakdown into an additional 1420 sub-questions means that
the financial firms in America struggle to comply with a law that is partly unintelligible
and partly cumbersome(Public Law, n.d.; Markovich, 2013).
Too Complex for Comfort
The fact that the government of the two ruling parties in America had
kept adding stacks of rules, most of which are retained, means that Dodd-Frank
is merely one part of a wider trend. Broadly speaking, while the Democrats make
rules to expand the welfare states, the rules written by the Republicans to
thwart terrorists has made flying to America an uphill task and, as a result,
have prompted legions of brainy migrants to choose Canada and Western Europe
instead. Barack Obama’s healthcare
reform of 2010 also illustrates the regulatory perils facing companies in
America. As a practical matter, the healthcare law does little to reduce the
system’s staggering and increasing complexity even though it has many virtues,
especially given that it attempts to make health insurance universal in
America. Going by the provisions of the healthcare law, every hour spent in
treating a patient in America will require at least 30 minute to one hour of
paperwork. And by the end of 2013, the hospitals in the country faced news
rules which increased the number of federally mandated categories of illness
and injury for which they may claim reimbursement from 18,000 to 140,000(Anderson,
2014; The Economist, 2012).
The American laws are too complex for two main reasons. First, the
lawmakers are extremely proud and they believe that they can govern every
eventuality with laws and regulations. This important fact may be clarified by
some their laws that are both delusional(for example the Dodd-Frank law with
which they believe can help them anticipate and ban every nasty tricks which
financial institutions will dream up in the future) and annoying(such as the once
proposed Colorado law that specifies how many crayons each box of crayon must
contain). The bottom line here is that when rules become too complex, they seldom prevent abuses. Instead, they
create loopholes which the shrewd and the unscrupulous can abuse with impunity(The
Economist, 2012).
American laws are also complicated due to the activities of the
lobbyers. In a broader sense, when a
government like America strives to micromanage so many activities, they,
unfortunately, creates huge incentives for lobby groups to push for special
favors. Hence, it is not hard for the
politicians at Washington to slip in clauses that benefit their campaign donors
and friends when a bill is hundreds of pages long. It is thus not surprising
that Obama’s healthcare law and the Congress’ bill to regulate greenhouse gases
included ton of favors for the pushy(The Economist, 2013).
What the US Congress should realize is that complex rules costs money
too. For instance, America’s share of initial public offerings(IPOs) fell from
67% in 2002 when Sarbanes-Oxley law was passed to 16% in 2011 because the law,
despite some benign tweaks to it, made it so difficult to list shares on the
country’s stock markets – a development that
forced firms to look elsewhere or to stay private. According to America’s
Small Business Administration, overregulation can add as much as $10,585 in
costs per employee – the kind of cost that businesses will be glad to avoid(Feulner,
2012; The Economist, 2012).
Simplifying the Rule Book
From a political standpoint, it
appears that the Obama administration and the Democrats at Capitol Hill has a
bias towards overstating benefits and understating costs and, as such, pay lip
service to the need to ensure that new rules are cost effective. Even the
Republicans give only a sketchy idea of how they would slim the rulebook and
repeal Obama Care and Dodd-Frank law, even though they repeatedly claim that they would do so. For a country in desperate need of jobs, there’s
no doubt that America needs a smarter approach to regulation. First, before any
rule is enacted, they should be subjected to cost-benefit analysis by an
independent watchdog that will, in turn, make the result public. Second, the
legislators should pass simple rules that will have sunset clauses and leave
regulators to enforce them so that they(the legislators) can re-authorize them
when they expire after, say, ten 15 years. Simplicity in this regard means that
all big regulations should be watered down to broad goals that prescribe only
what is strictly necessary to achieve them, and not their very familiar ‘all-purpose’ instruction manual
in which the important dos and don’ts are lost in an ocean of verbiage(The
Economist, 2012). Finally, to mitigate
the real danger of regulation crushing the life out of America’s economy, those
regulators who made bad decisions should be made more accountable and easily sack-able,
and any unreasonable judgment by the bureaucrats should be subjected to swift
appeal.
References
Anderson A.(2014):
The Impact of the Affordable Healthcare Act Healthcare Workforce. Heritage Foundation. Retrieved April 4, 2014 from http://www.heritage.org/research/reports/2014/03/the-impact-of-the-affordable-care-act-on-the-health-care-workforce
Economist(2012): United States Economy – Overregulated America.
Retrieved April 4, 2014 from http://www.economist.com/node/21547789
Economist( 2013): Legislative Verbosity. Retrieved April
4, 2014 from http://www.economist.com/blogs/democracyinamerica/2013/11/legislative-verbosity
Feulner E.(2012):
Onerous Effects of Overregulation. Heritage
Foundation. Retrieved April 4, 2014 from http://www.heritage.org/research/commentary/2012/02/onerous-effects-of-overregulation
Gattuso J., Katz
D.(2013): Red Tape Rising – Regulation in Obama’s First Term. The Heritage Foundation. Retrieved April
4, 2014 from http://www.heritage.org/research/reports/2013/05/red-tape-rising-regulation-in-obamas-first-term
Markovich
S.J.(2013): The Dodd-Frank Act. Council
on Foreign Relations. Retrieved April 4, 2014 from http://www.cfr.org/united-states/dodd-frank-act/p28735
Public Law(n.d.):
Dodd-Frank Wall Street Reform and Consumer Protection Act. 111 Congress Public Law 203. Retrieved April 4 2014 from http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/html/PLAW-111publ203.htm
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