Friday, April 4, 2014

Business Regulation in America - The Wages of Sin



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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