Excess Regulations Hurts U.S. Manufacturing More Than Asian Competitors
Manufacturing associations such as the National Association of Manufacturing (NAM) have been wary or hostile to imports from foreign manufacturers. But manufacturers and associations recognize that for U.S. firms to compete in world markets, they have to compete successfully with foreign firms in U.S. markets.
An alternative to subsidizing U.S. manufacturers or tariff barriers against foreign goods, is to reduce regulatory costs here at home for U.S. manufacturers. When affirmative debaters (or hapless politicians like Donald Trump) call for restricting imports to “bring back American jobs,” negatives can explain that improving economic freedom at home will allow U.S. firms to be more competitive in more industries at home and overseas.
The costs imposed by excess regulations are a significant burden according to NAM:
Manufacturers are the backbone of our nation’s economy and employ more than 12 million men and women who make things in America. To maintain manufacturing momentum and encourage hiring, the United States needs government policies more attuned to the realities of global competition. Our regulatory system produces unnecessarily costly rules, duplicative mandates, impediments to innovation and barriers to our international competitiveness. Despite many initiatives and efforts to reduce the unnecessary regulatory cost imposed on businesses, the cumulative regulatory burden continues to expand.
The new NAM study (pdf) reveals the financial impacts, which fall disproportionately on smaller firms:
The study also reveals the extent to which manufacturers bear a disproportionate share of the regulatory burden, and that burden is heaviest on small manufacturers because their compliance costs are often not affected by economies of scale. The analysis finds that the average U.S. company pays $9,991 per employee per year to comply with federal regulations. The average manufacturer in the United States pays nearly double that amount—$19,564 peremployee per year. Small manufacturers, or those with fewer than 50 employees, incur regulatory costs of $34,671 per employee per year. This is more than three times the cost borne by the average U.S. company
Recent posts for the NCFCA policy topic on federal court system reform, discuss books and studies on the historical and current debate over liberty of contract. For Stoa debaters, the key issue is the regulatory burden that hits U.S. manufacturers, raising costs and reducing manufacturing flexibility.
If Uber drivers contract with Uber and with Uber customers to give people rides, should city regulators be able to outlaw or rewrite those contracts? Should it matter to state and federal judges whether the stated goals of the regulations have some reasonable justification, such as public safety?
A July 14, 2015 re/code headline reads: “Uber Could Have to Pay an Additional $209 Million to Reclassify Its Drivers in California.” That cost to Uber would be passed on to rideshare customers who would pay higher fares, and to drivers who would earn less, plus the the value of Uber the enterprise would be reduced by these new labor regulations. Already Uber is spending millions of dollars to defend its freedom to operate as it hires extra lawyers, lobbyists, and public relations consultants.
Similarly, should small U.S. manufacturers be free to contract with U.S. workers to work long hours during crunch times in product development cycles, or are start-up entrepreneurs burdened by the same labor regulations designed for large manufacturers?
These costs to Uber and Uber customers are similar to thousands of other regulations laced across the economy. The estimated total: $2,000,000,000,000 a year! (two trillion dollars), according to studies on regulatory costs.
Earlier posts on the NCFCA topic (for example, Liberty of Contract: Rediscovering a Lost Constitutional Right), look at the justice arguments for the court system to defend liberty of contract from special interest legislation. The natural rights claim is that people’s life, liberty, and pursuit of happiness ought not be infringed by government. But thousands of state and federal regulations, most having little or no safety rationale, make life more complex and cumbersome for businesses.
In CEI’s Ten Thousand Commandments 2015: An Annual Snapshot of the Federal Regulatory State, Clyde Wayne Crews collects the data from regulatory studies and federal publications. From the summary:
The scope of federal government spending, deficits and the national debt is staggering, but so is the impact of federal regulations, which now exceeds half the amount the federal government spends annually. Unfortunately, regulations get too little attention in policy debates because, unlike taxes, they are unbudgeted. They are also difficult to quantify because their effects are often indirect. In Ten Thousand Commandments, Crews compiles available data on regulatory costs and trends. By making the size, extent and cost of Washington’s rules and mandates more comprehensible, Crews underscores the need for more review, transparency and accountability—for both new and existing federal regulations.
Ideally, Congress would escape the embrace of business, labor, environmental, and other interest groups, and reduce or eliminate regulations that raise costs without delivering safety or other benefits.
To some extent judicial restraint arguments encourage the federal court system to defer to Congress as it passes both helpful and harmful legislation. But judicial engagement advocates argue the court should step in to block regulations that interfere with use of private property and otherwise lawful liberty of contracts.
The National Association of Manufacturers also publishes a study of the cost of excess regulations (page has link to full study:
The National Association of Manufacturers (NAM) has issued a report that shows the macroeconomic impact of federal regulations. The study also reveals the extent to which manufacturers bear a disproportionate share of the regulatory burden, and that burden is heaviest on small businesses and manufacturers because their compliance costs are often not affected by economies of scale.
Alas, the same holds for external pressures. In particular, it is not the case, as OMB has proclaimed, that “businesses generally are not in favor of regulation.”
Free enterprise capitalism is a different political system from a mixed economy where regulatory favors are readily available.
Business not only generally favors regulation, but often sought regulation in the first place (Nobel laureate George Stigler said that in 1971 and explained “regulatory capture” in an article called “The Theory of Economic Regulation.”)
And Crew notes:
Also important: Just as economic regulatory agencies are captured by special interests, much of what is considered social or health/safety or environmental regulation may self-interested rather than public-spirited. Even when regulation “works,” the overall or societal benefits can be outweighed by costs; also the social calculus approach to “net” benefits can ignore wealth transfers, property takings and due process.
The stakes are high for protecting liberty of contract and restarting a new American free-labor movement where freedom to work takes center stage.
More competitive American firms will be stronger competitors at home and in China, Japan, South Korea, Taiwan and other countries around the world.