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Posted at 09:44 AM ET, 12/08/2011

For business growth, regulations aren’t always the problem

This summer, Philadelphia Mayor Michael Nutter vetoed legislation that would have made area companies with more than five employees provide sick days to employees, saying it put an undue regulatory burden on local businesses.


Some small business owners say it’s uncertainty about government regulations, not the policies themselves, that are the problem. Here, Sen. Jim DeMint, R-SC, center, joins other coservatives lawmakers to criticize President Obama's national health care plan, often called "Obamacare," Wednesday, Oct. 5, 2011, during a news conference on Capitol Hill in Washington. (AP Photo/J. Scott Applewhite) (J. Scott Applewhite - AP)
“The bill imposes considerable administrative burdens on businesses, particularly small businesses that do not have sophisticated time-keeping systems in place,” Nutter wrote at the time.

Bill Dunkelberg, chief economist at the National Federation of Independent Business, used the Philadelphia sick-day legislation as one example of the type of regulations that, in his view, make it hard for small businesses to operate and prosper.

“It’s just another thing to tax the most important capital of the firm, which is the entrepreneur’s time and energy,” Dunkelberg said, speaking at a business-growth forum held Wednesday in Washington. “Regulatory compliance is a huge, huge burden.”

Dunkelberg was one of the panelists at the Atlantic High-Growth Business Forum, where the topic of conversation quickly turned to — what else? — the role of regulations in the success of small businesses.

Other panelists echoed Dunkelberg’s sentiments:

“Our clients are consistently saying: less intervention, less regulation, less uncertainty,” said Jon Dowst, senior vice president for small business lending at Bank of America Merrill Lynch, which underwrote the event.

“Uncertainty” is a term often bandied about by small-business economists, and it’s also frequently conflated with “regulation.” In November, Carl Schramm, president and chief executive of the Kauffman Foundation, told CNBC: “I think the real issue is the uncertainty in the regulatory mix that holds back big companies is holding back small companies.”

On the other hand, after conducting an exhaustive meta-analysis of economic studies on the U.S. Treasury Department’s blog, assistant secretary for economic policy Jan Eberly concluded: “None of these data support the claim that regulatory uncertainty is holding back hiring.”

Back at the panel, Josh Bivens, an economist with the left-leaning Economic Policy Institute, said the “uncertainty” Dowst mentioned is a red herring:

“No one is talking about uncertainty when they talk about regulations — people are complaining about the regulations themselves,” Bivens said.

That same theory is presented in an EPI report by Lawrence Mishel:

“It’s not really ‘uncertainty’ about these potential rules and regulations that is the complaint; the regulatory process is moving along, and the rules are becoming final and therefore certain. But the House Republicans and various business groups are actually trying to delay the rules, prolonging the sense of uncertainty,” Mishel writes.

In the discussion over whether government regulations stifle business growth, an important distinction emerges. When it comes to small businesses succeeding — something the regulations-making policymakers desperately want them to do — it’s not necessarily the actual regulations that hinder growth, sometimes, it is the uncertainty.

Small business surveys and polls lack consensus on whether the mere existence of government rules keeps small businesses from flourishing.

On one end, the U.S. Chamber of Commerce found in July of this year that “85 percent [of small business owners] say that they are somewhat or very worried about the impact of regulations on their business.” According to BLS data, however, in 2010 just 0.3 percent of layoffs were attributed to “government regulations/intervention,” while 25 percent were because of a drop in business demand.

But some small business owners say they’re fine with regulations — as long as they know what the regulations are going to be. Jeff Zimman, the chairman of the San Francisco health software company PositScience, said that it’s not government regulations that frustrate him, it’s the fact of not knowing what shape the new regulations — health care policy in particular — will take.

“It’s so clear that the uncertainty about where we’re going to end up nationally on health care policy, for example, is affecting how people in the health care industry behave,” he said. “I’m not a Libertarian who believes that if government just gets out of the way the market will figure things out. I’m not against all regulations, but business leaders are fed up with the constant opposition and sparring in Washington.”

The NFIB’s own survey on the matter breaks up the two impediments — uncertainty and regulations — into two separate categories. In answer to the question, “What is the single most serious obstacle to achieving your desired business size,” more business owners reported that “current market or political uncertainty” (22 percent) was an impediment to growth than “legal or regulatory issues” (11 percent).

The other problem, said Ben Sawyer, the co-founder of Maine games consulting firm Digitalmill, is that the “regulations” discussion is far too general, with no regard for the specific needs of different industries.

“I know plenty of small business owners on whom regulations have no effect,” he said. “Regulations aren’t the bogeyman in all contexts. You’re not going to solve all regulations, you’re going to solve a regulation.”

By  |  09:44 AM ET, 12/08/2011

 
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