“Well, you can determine it by asking the owner(s). :-)”

“Hmm, why did my business fail? A. I made some planning blunders; B. I didn’t work hard enough; C. It’s all the government’s fault.

Definitely C.”


“…to believe that any businessperson who says that regulation is putting them out of business is lying…”

I wouldn’t go that far. I’d argue that they’ll point first at the government, or lazy employees, or thieves, or anybody BUT themselves. Therefore, I don’t think that their testimony is of much value. Again, the playing field is level because everybody gets hit with the same regulations, so somebody who can’t survive when competitors DO survive doesn’t have a case against regulation.

It’s unquestionable that regulation raises the cost of business, which ultimately suppresses economic growth. However, we must evaluate regulation on a cost-benefit basis. Yes, it costs financial institutions millions of dollars to satisfy the requirements of Dodd-Frank. But the recession caused by banking failures that Dodd-Frank would have prevented cost us more than a trillion dollars. In cost-benefit terms, Dodd-Frank appears to provide a big boost to the economy over the long term.

This raises another aspect of regulation: short-term versus long-term considerations. Usually businesses operate on a shorter-term basis than is best for society. Regulation often serves to integrate long-term considerations into business decisions.

A good example comes from FAA regulation of aircraft. These regulations are extremely detailed and quite demanding. Airplane crashes are rare; yet the cost of a plane crash is so great that the regulations are of long-term benefit to society.

The cost of complying with a particular regulation might be a significant percentage of revenue for a small business,while the cost for the larger competitor might be a rounding error on their much larger revenue line.”

Yes, and this is why most such regulations have a variety of floors to relieve the small-time operator. Such schemes, however, are gross approximations. Above the floor, you pay the costs of the regulation; below it, you do not. But the costs of the regulation, as a proportion of gross revenue, increase smoothly with the size of the company.

The economy has already developed a hack to address this problem: various means for providing capital for rapid expansion. In the ideal, you would start and develop your business below the floor, establish a solid customer base and a good revenue flow — then go to a bank to get a loan. Or an angel. As you grow, you climb the ladder up to venture capitalists and ultimately an IPO. At each stage, you get enough capital to jump past the breakpoint where the sudden increase in regulatory costs seriously hurts your profits. That, at least, is the ideal. And we all know that the ideal is never achieved. But it does help.

You cite a good deal of evidence demonstrating that there are large economies of scale that penalize small businesses. I don’t think that this has anything to do with regulation; I argue that this reflects a fundamental shift in how modern economies operate. In the land/labor/capital triad behind economic development, capital is playing an ever-growing role and labor is playing an ever-shrinking role. Any startup succeeds on the creativity and labor of the founders; they have little or no capital. But technology provides greater economic power to companies that can afford it. Factories that once teemed with thousands of workers are now populated primarily by robots. The new factories require a great deal more capital, and lots less labor.

We’ll be seeing the same thing soon with the advent of driverless vehicles. A lot of truck drivers and cab drivers will be out of a job as high-capital driverless vehicles replace them. Capital replaces labor. This is the fundamental force wreaking havoc with our societies. It will require profound shifts in our social structure, including large transfers of wealth from the owners of capital to those whose labor loses most of its economic value.

Master of Science, Physics, 1975. Computer Game Designer. Interactive Storytelling. www.erasmatazz.com

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