Manufacturing leaders, like many other Americans, have been frustrated with the slow pace of growth so far this year, particularly in the first quarter. While manufacturers are mostly upbeat about demand and output over the coming months, they also remain somewhat tentative in their outlook.
This is perhaps not surprising given the depth of the recent downturn and the fact that we are only now beginning to see pre-recessionary levels for industrial production, non-farm employment and many other indicators—five years after the start of the recovery. We are all waiting anxiously for the economy to finally gain traction.
Government can help by enacting policies that allow our businesses to better compete globally and that help our firms expand their operations and hire more workers. Yet, we often hear that government hinders more than it helps.
Wednesday, the National Association of Manufacturers (NAM) released a study, for instance, that finds that 88 percent of manufacturers see regulatory compliance as a top business challenge. This aligns with other surveys showing the business climate as a challenge, with excessive regulatory burdens often cited as a major concern.
The burdens of regulatory compliance fall disproportionately on small businesses, particularly small manufacturers, largely due to issues of scale.
The federal government has addressed this long-recognized problem through federal laws and initiatives, such as the Regulatory Flexibility Act and Executive Order 13610, which require agencies to consider the cumulative costs of regulations and their impact on small entities.
The latest NAM study finds that businesses spent more than $2 trillion in 2012 to comply with federal regulations. More importantly, compliance costs for businesses in the United States averaged $9,991 per employee that year, with manufacturers incurring a per-employee cost of nearly double that amount, at $19,546. Small manufacturers with less than 50 employees spent a whopping $34,671 per employee, illustrating the massive burden placed on many of these firms.
Manufacturers believe that regulation is critical to protect worker safety, public health and our environment. At the same time, our regulatory system is in need of improvement. We need smarter regulations that minimize unnecessary burdens and better balance benefits and costs, eliminating redundancies wherever possible. Regulations are allowed to accumulate with no real effort to evaluate or clean up the past. It is imperative that policymakers and regulators understand the cumulative burdens that their rules are placing on businesses and enact policies that minimize the costs that do not contribute to the realization of regulatory objectives.
Smarter rulemaking is smart economic policy, both at the federal and state level, and governors of both political parties wisely see this as an economic development issue. For instance, in signing an executive order for regulatory relief in his state, Delaware Gov. Jack Markell said, “We must strive to ensure that [existing] regulations do not impose unnecessary burdens upon our residents, businesses and other organizations.”
In the NAM’s most recent analysis, 85 percent of manufacturers surveyed said they would invest more in their businesses, both in their workers and in capital equipment, if their compliance costs could be lessened.
For its part, the Administration has said it wants to streamline and reduce overall regulatory burdens. That would be more encouraging, perhaps, if it were not also pushing its priorities with ever-more costly regulations. These actions will only further increase the compliance burdens of small businesses and manufacturers moving forward. For example, we already know that new ozone regulations set to be announced this fall are likely to be the most expensive ever imposed on businesses, and that is just one new rule working its way through the process. Meanwhile, little has been done to remove duplicative and unnecessary requirements that harm our ability to successfully compete in the global marketplace.
While regulations are often well-intentioned, manufacturers and small businesses face higher compliance costs from many of these actions. With that in mind, we ask that policymakers look at the larger regulatory landscape before imposing new burdens that will stifle growth and dissuade new investments.
Chad Moutray is the chief economist at the National Association of Manufacturers.