Resolute: Navigating the Regulatory Thicket [Fourth Branch]
Articles,  Blog

Resolute: Navigating the Regulatory Thicket [Fourth Branch]


It would really be a sad day if I couldn’t volunteer and help others anymore. I am one of the co-owners of America’s Phone Guys here in Vancouver, Washington. We sell business telephone systems and VoIP phone service. So, that’s phone service that goes over the internet to specifically business customers, mostly here in the Portland metro area but we do go out to the coast, north up to Longview down as far as like Salem in Oregon and east, maybe Hood River, that kind of area — pretty good chunk of the Northwest here. So, my wife was leaving a job. She started answering the phone and running the paperwork for the office. We split up the duties and off we went. It seems like each month there’s a new VoIP tax. We pay income tax to Oregon for the portion of revenue that we earned there. So, it makes it more complex than just filing taxes here and just in the state of Washington. You’ve got a certain amount of time you spend in a day that you’re trying to just spend running your business and then we have this whole government oversight section of our time that we have to manage — dealing with rules and regulations to keep us from being in violation and getting in trouble. So, this is one of our typical VoIP phone service invoices to a customer. At the bottom of the bill, there are six taxes and fees. So you’re saying that half of the bill — half the line items on the bill — are taxes and fees? I’m saying half of the bill is taxes and fees, which account up to thirty to forty percent of the cost to the end customer. Yeah. Regulation, in principle, is supposed to correct for these failures that do occur in the private marketplace. Private markets are great social institution for allocating goods and services, but they aren’t perfect and regulation is supposed to fix some of those failures when they do occur. You know, it’s impossible for anyone to be a total expert on every aspect of the law because it’s so complicated and it’s so niche. It’s all the more difficult for a small business owner who doesn’t have a legal background and they’re busy trying to run a business. There have been initiatives, particularly at the federal level, over the last several administrations, to try to remove regulations that are no longer needed and even when you go looking for them it’s hard to find them. There’s usually a problem that motivated the adoption of a regulation. If the regulation is responding to a problem, then removing it leaves the public exposed to that problem all over again. In the case of Lois and Caleb, they’re not just dealing with federal regulation, which can be cumbersome enough, but they’re dealing with Oregon regulation, Washington State, to complicate matters even further they’ve got to deal with Portland. Municipal regulation on top of state regulation on top of federal regulation — this is what I’m referring to when I talk about the regulatory thicket. Analysts have looked at the question of whether regulation kills jobs and the bottom line is that at an aggregate level across the whole economy, regulation is really not much of a factor at all. There are some losses, there are some gains, but on balance they sort of even out. If one looks at the pages of federal regulations — yes, they’ve grown over time, but they haven’t grown as much as the economy has grown, so GDP has grown at a much higher rate over the years than are pages in the federal regulations. If you look at other indicators of the growing complexity of society, we have far more people traveling in airplanes today than ever before — an indication of the complexity of business interactions. We have a vastly greater rate of growth in patents, both applied and granted. So, these other indicators of complexity in society and in our economy have also grown and they’ve grown at actually rates much greater than the actual amount of regulations, but if you’re just concerned about the growth of regulation then you’re concerned about this idea that you’re calling the regulatory thicket. I’m a person that needs to help other people but increased regulations just make me have to work a lot more and have less time to volunteer. I’m just lacking in the energy and the willpower. Having all the burdens at work weighing on me eliminates the joy. To work so hard and feel like there’s always some other regulation around the corner that I might not know, really leads to a lot of sleepless nights. We don’t want an environment where only the big business, only the big corporate interests can succeed. Anyone with a good idea and the motivation — being able to launch their dream, building a business, creating jobs — a lot of innovative ideas that start out as small businesses and you don’t want to kill them in the crib. Small business makes up roughly half of the economy, measured in GDP. So, that is the backbone of the American economy, I would say. There needs to be a change in mentality. It shouldn’t be about the shock and awe penalties. It shouldn’t be, “I gotcha.” The answer so often by default is major penalties or a lawsuit and I talk to small business owners every day who are dealing with lawsuits on everything under the Sun and a whole lot of it has to do with tripping up on some regulation, right? Any violation could potentially prove very problematic and in some cases could sink your business. We have to recognize that if you want to create a separate set of rules for small businesses than for large businesses, then we’re increasing the resources that are needed to create rules in the first place. Instead of now creating one set of rules, we have two sets of rules. And, what if somebody else comes along and says, “Well, I have something else that’s completely different. Maybe we should have a third set of rules?” And then somebody else, and so forth, and suddenly we no longer have a system of rules but a system that requires individualized judgments in each individual case and there’s no economy in the world that has the resources to make those kind of individualized judgments. When a Fortune 500 company is trying to figure out how to proceed with a project, they run into a regulatory roadblock, they have the resources and the manpower. They have compliance experts for all sorts of regulatory issues that they have to deal with and they have in-house attorneys, general counsel… small businesses don’t have those resources. We have to say, “These are the standards that all businesses should comply with.” We would have other problems to deal with if government was given the authority to set a specific rule for Mr. Smith and a different rule for Ms. Jones and then we would have to worry about government having the ability to treat people unequally. With regard to regulation, I need there to be a black and a white so that if you tell me I have to do this, whether I like it or not, that’s what I’m gonna do. When you can’t tell me is my employee a Washington employee or is my employee an Oregon employee, it drives me to distraction. I can’t… it’s really difficult to deal with, it’s so frustrating. But if we’re gonna have the thicket, it’s a really good idea to at least try to create some resources to help small business owners like Lois and Caleb sort through this mess. If they have a question, it’s a lot of times exceedingly difficult to get actual guidance. Good government is a public good. It is underprovided. There are misaligned incentives that lead to it being underprovided. When it comes to regulation, getting wise regulation, getting optimal regulation, making sure that we don’t have a regulatory thicket that’s overburdensome is a public good, too. If we have good government, then we’re making sure that regulation is only occurring when it’s net beneficial, when it really is solving market failures, but we get the government we pay for. Someone at some point creates every new regulatory burden, they don’t exist but for someone putting this in place and so at the outset, people should be thinking, before adding new rules that are gonna complicate business even more, they should be thinking about whether it really makes sense to move forward with that and whether there’s a more simple way to approach this. I definitely think it’s worth looking at whether we have in some situations too much regulation, regulation that’s out of date, but at the same time that we’re looking for those things we can’t also as a society take our eye off the ball of other problems, new technologies that are coming in, new ways of doing business; and to really understand how to address problems that might be created by the new technologies we need to invest in government that can analyze those and can make sure that there are sensible rules dealing with the new problems as well, but that’s a public good. If the regulations continue and build, we’re going to end up with a situation where I won’t be able to compete with the big guys and they will come in and clean up the market and be immune to those regulations, and that will cut my profits to the point where we won’t be profitable and I’ll have to close the business. Are you willing to fight it? I’m willing to fight it. This is… it’s my baby, so I will fight as hard as I can until I can’t.

Leave a Reply

Your email address will not be published. Required fields are marked *