A deep dive into the many ways government red tape impacts private enterprise

One of the positive outcomes of Florida’s “rules throttle” law, legislative rules ratification, which was passed in 2010, is that it fostered better communication and cooperation between the legislature and the state agencies charged with interpreting and executing their laws.

My research update this week shows an excellent example of this cooperation. The rulemaking subcommittee of the Florida legislature worked with the agencies and also the business community and affected parties in order to improve guidance for agencies in estimating the regulatory costs of proposed rules. These discussions brought for useful and instructive information for policymakers not just in Florida, but elsewhere, including North Carolina.

They made a deep dive into how government red tape can affect private enterprise in so many different ways. They listed 13 separate circumstances of regulatory impact owing to compliance costs, for example.

They also looked into numerous ways red tape affects small businesses:

  1. An owner, officer, operator or manager must complete any training or testing to comply, or is likely either to expend 10 hours or to purchase professional advice to understand and comply with the rule in the first year
  2. Business opportunities are restricted, including but not limited to any limitation on previously offered goods or services or any restriction on ancillary business activities
  3. Taxes or fees assessed on transactions are likely to increase
  4. Prices charged for goods and services are restricted or are likely to increase because of the rule
  5. Specially trained, licensed, or tested employees will be required
  6. Operating costs are expected to increase
  7. Any capital investment is necessary to comply with the rule

And here is their list of red tape’s adverse effects on “economic growth, job creation, employment, investment, business competitiveness, productivity, innovation, and small business”:

  1. Increased customer charges for goods and services
  2. Decreased market value of goods and services produced, provided, or sold
  3. Increased costs resulting from the purchase of substitute or alternative products or services
  4. Reduced productivity due to decreases in employment
  5. Lost business opportunities due to capital costs, time lost for creative and entrepreneurial effort, or any restrictions on investment choices or market entry
  6. Any other impacts suggested by the Rules Ombudsman, the agency head’s appointing authority, or interested persons

Understanding these potential impacts is important, I explained:

Government red tape slows down the economy. That is a consistent findingin economic research literature. Federal regulation has been estimated to cost the U.S. economy over $1.9 trillion in 2017. State regulation has been estimated to cost the North Carolina economy as much as $25.5 billion in 2015.

Those are unseen losses. They represent the absence of economic productivity that would be there but for the red tape. Policymakers who understand this aspect of red tape should be interested in cutting red tape and keeping regulatory burdens light and up-to-date.

For anyone interested, there’s a good list of potential reforms at the end of my report on “Regulatory Reform.”

Jon Sanders / Research Editor and Senior Fellow, Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...