Sean King

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Knoxville, Tennessee, United States

Friday, October 15, 2010

America is Drowning in Law

Philip K. Howard:
Government is broken and the economy is gasping. The reason is the same: Americans no longer feel free to roll up their sleeves and make the choices needed to fix things. Governors come to office and find that 90% of the budget is pre-committed to entitlements and mandates enacted by politicians long dead. Teachers no longer have authority to maintain order in the classroom.

Legal mandates and entitlements have accumulated, like sediment in the harbor, until it is almost impossible for Americans to get anywhere without trudging through a treacherous legal swamp. Only big businesses, not small entrepreneurs, have the size (and legal staffs) to power through the legal sludge.

America will thrive only so long as Americans wake up in the morning believing they can succeed by their own efforts. Innovation, not cheap labor, is the economic engine of America. The net increase in jobs since 1980, according to research at the Kauffman Foundation, is attributed solely to newly-started businesses.

Unleashing these powerful human forces requires, however, an open field for individual opportunity - bounded by reliable legal structures that enforce contracts and other important social norms.

Instead, the land of opportunity is more like legal quicksand. Small business owners face legal challenges at every step. Municipalities requires multiple and often nonsensical forms to do business. Labor laws expose them to legal threats by any disgruntled employee. Mandates to provide costly employment benefits impose high hurdles to hiring new employees. Well-meaning but impossibly complex laws impose requirements to prevent consumer fraud, provide disability access, prevent hiring illegal immigrants, display warnings and notices and prevent scores of other potential evils. The tax code is incomprehensible.

All of this requires legal and other overhead - costing 50% more per employee for small businesses than big businesses.

Read the whole thing.

Mr. Howard has nailed America's problem exactly. As an owner in several small businesses, I can vouch for the fact that compliance with government regulations and mandates is an ever increasing burden that consumes tremendous resources. Franky, I'm shocked that America managed to rank 8th worldwide in economic freedom. I can't imagine how difficult it must be to do business in these other countries!

Truth be told, regulations are so extensive and consuming that no small business (or large one for that matter) can possibly comply with them all. And, the fact that these laws and regulations were passed by an elected government doesn't make them any any less intrusive or more justifiable. As Federalist 62 states:

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

The problem with massive regulation is that it undermines the Rule of Law. As Madison suggested in Federalist 62, the Rule of Law can only function as a rule of conduct when the laws are reasonable in number, understandable in wording, promulgated in advance, and relatively constant. Can anyone seriously suggest that this is the case today?

And, where this is not the case, the Rule of Law no longer governs. Instead, we are subjected to the arbitrary and capricious determinations of this or that government official who may or may not choose to enforce the voluminous and often vague rules against us in any given instance. Can anyone imagine a situation any more ripe for corruption? Is it any wonder that large businesses pay billions in "protection money" to the public sector in the form of campaign contributions? How can small businesses with less resources expect to compete?!

The result is that large companies have a huge advantage over small and medium sized businesses when it comes to dealing with the government. Only large companies have the economies of scale to employ legions of lawyers to insure compliance with the rules, or to defend the company when it gets caught breaking them, or to obtain waivers so that the company may simply ignore the rules that apply to you and me, or to buy off politicans.

The sad truth of our present situation is that most every single small business could, at the whim of some government bureaucrat, be fined out of existence for breaching this or that regulation. It is only limited government resources that prevent these bureaucrats from putting all of us out of business. If bureaucrats could successfully enforce every one of these regulations against every business, economic activity would cease.

We convince ourselves that America is a capitalist country, and some of us take great pride in that fact. But, is it really? If we define socialism in the strictest sense as government ownership of the means of production, then America is indeed capitalist by comparison. But when the government can, via regulation, dictate with great precision how each of us conducts our business, and when the government can, via taxation, confiscate upwards of half of our profits, does it really matter whether the government technically "owns" your business's stock? Emphasizing lack of government ownership under these circumstances is to make a distinction without a difference.

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