It was a common theme from candidates and businesses during the 2012 election. In their campaign swings through the Miami Valley this year, Republican presidential candidate Mitt Romney and U.S. Senate candidate and Ohio Treasurer Josh Mandel invariably drew cheers from crowds when they denounced the impact government regulations have on small businesses.
But economic data show an economy on the mend with businesses moving forward despite the existence of the very regulations that generated so much heat on the campaign trail. Is the regulation gripe just an applause line, or is there real meat behind the argument that small businesses — the very backbone of the nation’s economy — would be freed up to do more hiring if they weren’t so burdened by the mandates of government?
The answer is yes on both counts. An examination of data on employment, business profits and investment shows that a real recovery is taking place, deflating at least some of the argument that regulations are stifling hiring. But the recovery is also not so robust — or universal — that businesses couldn’t benefit from having less paperwork and rules to follow. The question is, which ones to do without? And at what cost?
“Who would want to turn back the clock and put lead in gasoline, allow the mercury to be spewed into the air, want to drink arsenic?” said Jack Shaner, deputy director of the Ohio Environmental Council, arguing that the existing rules save lives. “These protections are prudent, efficient and necessary.”
Businesses aren’t looking to scrap regulations that protect the “safety and the welfare of the general public,” said Chris Ferruso, legislative director for the National Federation of Independent Business/Ohio. But they are, he said, looking for middle ground, a “common sense” test.
“Smart regulation requires a balanced approach, and many Ohio businesses tell me they have been held back by the burden and uncertainty of increasing red tape,” said U.S. Sen. Rob Portman, R-Ohio. “With our economy still struggling I believe we must build a more job-friendly regulatory system.”
But if the regulatory system is truly unfriendly to business, the economy has picked up in spite of it. In November, unemployment nationally fell to 7.7 percent, the lowest rate since 2008, while private sector jobs have increased for 33 consecutive months, according to U.S. Department of Labor Secretary Hilda L. Solis, adding some 5.6 million jobs to the work force.
Corporate earnings were up too — 18.6 percent in the third quarter over the same period last year, hitting $1.75 trillion, according to the U.S. Department of Commerce. After-tax profits were at the greatest percentage of Gross Domestic Product in U.S. history, according to CNNMoney.com.
Companies don’t appear to be sitting on their profits either. During the first three years of recovery from the 2009 recession, businesses invested heavily in equipment and software. When compared to a similar time frame after the recessions of 1982, 1991 and 2001, the investments’ share of GDP more than doubled, according to a study by Lawrence Mishel and Isaac Shapiro of the liberal think tank the Economic Policy Institute.
“The track record of business investment during this recovery is in stark contrast to claims made by business trade associations that government regulations are holding back the economy,” Mishel and Shapiro wrote in their Aug. 8 report.
In an interview with the Dayton Daily News, Mishel said, “If you watch what businesses are doing rather than what they are saying, then you can see that regulation is not presenting them a problem. Regulation is minding the people’s business, and that’s what people want.”
Balancing act
The tension between businesses and the watchdogs that regulate them is longstanding and, it would seem, never ending. The balancing act is finding how to protect the public from harm while not burdening businesses with so many rules and costs they are unable to thrive.
And that’s the rub.
“We feel there is too often regulation for regulation’s sake that has more to do with power and control of the regulating entity as opposed to any appreciable or demonstrative benefit for the public” said Dan Navin, assistant vice president of tax and economic policy for the Ohio Chamber of Commerce.
Countered U.S. Sen. Sherrod Brown, D-Ohio: Regulations and economic development are not mutually exclusive.
“My first priority is creating jobs and helping Ohio businesses and middle-class families grow and thrive,” Brown said. “It is a false choice to suggest that you cannot have strong consumer safety and public health laws and a productive business climate that creates jobs.”
It is rarely discussed during political campaigns, but some regulations — such as those requiring steel mill emissions scrubbers — create jobs in construction and manufacturing, said Sandy Buchanan, executive director of Ohio Citizen Action, a government watchdog group. And she argued that the Great Recession, which wiped out millions of jobs, was caused in part by weak regulations of the financial sector.
“If not for the Clean Air Act, EPA and environmental protections, how would we as a society protect citizens when they flip on their tap, when they fill up their car, when they are walking outside taking a breath of air?” Shaner said. “We cannot do that on a voluntary basis. We tried that. It was called the Industrial Revolution.”
A local example
Although the bulk of complaints from businesses are directed at the federal government, other rulemaking authorities come under criticism as well.
Steve Staub, president of Staub Manufacturing Solutions in Vandalia, said the local rules protecting the city of Dayton well field, which lies under his facility, limit his ability to expand.
“It’s a real sticky point. We’d like to add some more equipment but we can’t expand here,” said Staub, who argues that rules limiting hazardous materials in the protection area should permit existing businesses to expand — particularly since departures of businesses like Delphi would appear to have diminished the risk to the well field.
It’s a classic case of business versus environment and how much protection is too much protection?
Timothy Downs, Dayton’s deputy director of economic development, doesn’t apologize for the regulations, which were put in place after the 1996 Sherwin Williams fire threatened the well field that serves 500,000 Montgomery County residents.
“It’s one of our greatest assets as a community. It is a natural resource,” Downs said. “My office is working on a marketing campaign to attract businesses, companies that use water to come to Dayton because we have such good water and such quantities of it.”
Cost v. benefits
A spokeswoman for President Barack Obama said the administration works diligently to balance the health, welfare and safety of the American people at the same time as it promotes economic growth.
“The President’s regulatory approach has been consistent from the start of the administration and we intend to continue that approach moving forward,” said Moira Mack, spokeswoman for the president’s office of management and budget.
Both Obama and Ohio Gov. John Kasich have issued executive orders requiring a cost-benefit analysis before regulations are issued and during reviews of existing laws. Those rules, along with various laws and agency public hearing policies, require that the people and businesses affected by the rules be brought into the discussions before the rules are finalized.
Portman and U.S. Rep. Mike Turner, R-Dayton, both introduced bills that they say would improve the process, although neither passed in the current Congress.
Turner said the Obama administration unleashed an “unprecedented amount” of rules and regulations over the past four years. “A number of these from the EPA are a burden to family farmers and the agriculture industry as a whole in Ohio,” he said in an emailed statement.
But Tom Traynor, professor of economics at Wright State University, disputed the argument that Obama has overseen an unusually high number of rules and regulations.
“When compared to previous administrations the total number of new regulations (Final Rulings) in the first three years of the Obama administration were roughly the same as during the first three years of the G.W. Bush administration and had an annual average similar to the numbers of the previous 15 years,” said Traynor, citing data he analyzed from the the U.S. Office of Information and Regulatory Affairs.
Affordable Care Act
The U.S. EPA is a frequent punching bag for anti-regulation conservatives, as is the new health care reform law, known officially as the Patient Protection and Affordable Care Act and unofficially as Obamacare.
Business advocates say investment — and hiring — would increase if there wasn’t so much uncertainty over the health law’s impact.
Steve Bowser has long provided health insurance to his employees at Bowser-Morner Inc. of Huber Heights. But he said he is unsure if his benefits package will comply with the law. And he is upset that his insurer raised his rates 21 percent for next year, blaming the new law.
“There is so much confusion and uncertainty surrounding it, I think it is immobilizing companies,” said Bowser, president of the commercial testing laboratory and engineering firm.
Phil Parker, chief executive officer and president of the Dayton Area Chamber of Commerce, who opposed the law, said small businesses with fewer than 50 employees are reluctant to hire more because they would then have to comply with the Affordable Care Act and pay a tax penalty if they don’t insure their workers.
“Why would a guy force himself into paying a tax or something more when these new regulations are going to force him into a structure that isn’t going to be advantageous to him?” Parker said.
Supporters of the Affordable Care Act say spreading the burden of health care is a matter of fairness. Every company and person with health insurance is paying — in the form of higher premiums — for the uncompensated care hospitals provide to uninsured people, said John Bowblis, assistant professor of economics at the Farmer School of Business at Miami University.
Traynor also doesn’t buy the argument that businesses will stop hiring just to avoid complying with the Affordable Care Act. If companies need employees to provide goods and services customers want, they’ll hire them, he said.
“When it comes to explanations for the low employment levels, by far the biggest reason firms aren’t hiring more workers is that they don’t need more workers,” he said. “They are able to satisfy their customers with their current work forces.”
Bowser and Staub both said there are good reasons for government regulations, even as they are critical of some specific ones, and both said they remember the days before modern regulations led to a cleaner environment.
But Staub said the underregulation was replaced with over-regulation.
“A couple of generations back (businesses) did some bad things to our environment and to our earth,” he said. “I think at times we’ve gone so far the other way to protect it that we’re not using common sense.”
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