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POLITICAL ECONOMY
Outside View: Regulatory tidal wave
by Nicholas N. Owens
Washington (UPI) Mar 15, 2013


disclaimer: image is for illustration purposes only

It's heartening to see the U.S. economy making a recovery as the stock market ticks up and the unemployment rolls slim down. And while this is encouraging, there is still a long way to go before our nation is back where it wants to be.

Nobody knows that more than entrepreneurs and small business owners across the country.

According to the Small Business Administration's Office of Advocacy, small businesses represent 99.7 percent of all U.S. employer firms and continue to lead the country in job creation. Furthermore, small businesses employ about half of all private sector employees in the United States and account for about 60-70 percent of new jobs.

However, the same small business owners remain pessimistic about the economy. The National Federation of Independent Business released a survey showing small business confidence is at the fourth-lowest measurement in the nearly four-decade history of this poll.

Most small business owners report that instead of growing and creating jobs, a lack of confidence in the economy is forcing them to put off new investments and hires.

This economic uncertainty is due largely in part to the looming tidal wave of proposed federal regulations. According to a recent report, the federal repository for regulation changes -- regulations.gov - posted 6,120 regulations and notices in the last 90 days of the U.S. President Barack Obama's first term. That is an average of 68 a day.

These include not only proposed and finalized rules that directly affect small business, but thousands of pages of jargon that an everyday small business owner has to monitor, translate and implement.

Cass Sunstein in his capacity as Obama's regulatory czar, argued for the administration's commitment to getting it right on federal regulation.

"We will continue to eliminate unjustified regulatory costs -- and thus to strengthen our economy -- while taking sensible, cost-effective, evidence-based steps to protect public health and welfare," Sunstein wrote.

It was a strong statement, welcomed by those of us who have worked to shine a light on the ways in which well-meaning government regulations can strangle free enterprise and stifle growth. With Sunstein's unexpected departure from the White House Office of Information and Regulatory Affairs in August, the Obama administration lost its most dedicated and eloquent voice on the need for sensible, balanced regulation.

That's unfortunate, as the most powerful regulatory position in the administration hasn't been filled with a permanent official in over seven months. Small businesses in America are preparing to endure a regulatory tidal wave and need an informed and empowered advocate for smart regulation when it's sorely lacking in the administration.

The fact is, while rhetoric on regulatory policy has often been reassuring, the reality has been deeply disappointing. While there was a promise to reduce the volume and complexity of new rules and retire existing rules that aren't working, the administration has introduced a flood of rigid new regulatory policies, with more to come.

The most high-profile of these regulations, of course, relate to financial services, healthcare reform and the environment. But the regulatory tidal wave goes far beyond those areas into virtually every area of the economy. Small businesses in particular stand to face an unprecedented number of regulations in the coming years unless action is taken.

While serving as the Small Business Administration's national ombudsman from 2006 to 2009, I worked with small business owners left scrambling to understand how new rules and regulations would impact them financially and operationally. I saw firsthand just how costly it could be for these companies to deal with regulatory enforcement issues.

Just when we should be getting out of the way of entrepreneurs, we are instead witnessing a sharp increase in the cost of regulatory compliance for small businesses.

The fact is that every regulation has both a direct cost and an indirect cost of compliance. The direct costs associated with compliance can be pricey to say the least, but small businesses suffer most when it comes to the indirect costs like staff being diverted from their actual jobs in order to ensure compliance.

The Consumer Product Safety Commission just sued the former chief executive officer of a now dissolved company, Craig Zucker, in his individual capacity, to force a recall of the former company's "Buckeyballs" magnetic bead desk set, since magnets of this type have been swallowed in the past by young children causing intestinal damage.

This marks the first time the CPSC has ever taken such a drastic action, one that is as frightening as it is legally questionable since the agency has no actual statutory authority to sue corporate officers for non-criminal offenses.

It also raises the specter of future recalls of products that are perfectly safe for adults to use but that may be misused by unsupervised children, of which every home has dozens.

Zucker and his company, Maxfield and Oberton Holdings, was one of the few companies to ever fight back against the agency for demanding a recall of an adult product -- a product that just months earlier the CPSC had told the company was perfectly legal to sell. The agency even recommended specific warning labels for the product and the company complied.

But when the CPSC reversed itself and demanded a full recall of Buckeyballs, Zucker and his company fought back. In fact, the company launched a very public and tongue-in-cheek "Save Our Balls" campaign, even poking fun at the CPSC chairman and other staff.

But as its legal bills mounted against the limitless legal resources of the federal government, the company was eventually forced out of business and stopped selling Buckeyballs altogether, presumably ending the matter.

Yet apparently not satisfied with merely forcing this small business into bankruptcy, the CPSC now seeks to potentially bankrupt its former head. Incredibly, the suit would presumably force Zucker to write personal refund checks to potentially hundreds of thousands of former customers and could subject him to huge civil fines as well, all for selling a product that was perfectly legal and safe for its intended consumers.

This action by the CPSC represents the height of hubris and abuse of authority by this out-of-control agency. And it must not stand.

Recently, a small business owner in Ohio, Jason Hayes, told reporters: "It used to be once every six months or so we'd have to review new policies. It's every week now."

As the owner of Lordstown's Hayes Enterprises, he and his staff spend most of their time researching and meeting the requirements of burdensome regulations rather than focusing on expanding their business, providing better customer service, or treating their employees better.

The business owners I worked with shared their struggles with the enforcement, noting that most federal agencies seemed more intent on punishing them than helping them. If federal agencies would place a greater emphasis on promoting compliance rather than rushing to issue harsh penalties, particularly on small businesses, we would see enormous improvements to a regulatory system and to our nation's economy.

(Nicholas Owens is chief executive officer of Magnolia Strategy Partners LLC and served from 2006-09 as national ombudsman and assistant administrator for regulatory enforcement fairness at the Small Business Administration.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

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