Business Regulation: Protective or Orwellian Big Brother?


The Economist recently published an article called “Over Regulation in America.” Its premise is that regulation established around business starts out with good intention, but become mired in endless detail. The article cites as example the Dodd-Frank Act of 2010, which started out on a good foot, trying to prevent another financial crisis, but became too burdensome and complex to be effective—all wrapped up in a ribbon of red tape. Of the 400 rules it mandates concerning financial firms, only 93 have been finalized. You’d be hard-pressed to find someone who has actually read the whole thing!

The point of the article is that  American laws are way too complex. There are two reasons for this:

  • Hubris: Many lawmakers seem to believe that they can lay down rules to govern every eventuality. An example is  a proposed code for nurseries in Colorado that specifies how many crayons each box must contain. Complexity can actually create loopholes that can be abused.
  • Lobbying: There is definite incentive for interest groups to push for special favors, and bills that are hundreds of page long make it easy to “bury” these favors without many catching on or daring to read that far.

This type of complexity definitely has impact on the Colorado small business and entrepreneur. The Small Business Administration has found that regulations in general add a whopping $10,585 in costs per employee. This is a significant burden to the Colorado start-up and established business.

The article outlines some steps that could benefit all business, including the Colorado LLC, C Corporation and S Corporation.

  • Rules should be subjected to cost-benefit analysis by an independent watchdog
  • Results should be made public before the rule is enacted
  • Big regulations should also come with sunset clauses, so that they expire after 10 years unless Congress explicitly re-authorizes them

So the question is: Rules are necessary, clearly. But do they need to be made simpler—and if so, how much—to truly benefit the national and Colorado small business environment?

Copyright © 2011 Hasan, LLC. All rights reserved.