In the past eight years, sweeping changes to healthcare, environmental, labor and energy policies have resulted in huge changes to the way these industries do business — with staggering costs.
Since 2008, 25,155 new regulations have been issued under the Obama administration. The economic impact, according to American Action Forum, was $727 billion with 460 million new hours of paperwork required.
Annual costs of all current federal regulations are estimated at $1.88 trillion, or 11 percent of the US GDP. If the cost of regulation was a country, it would rank as the world’s 10th largest economy.
The financial implications of regulations on industry extend beyond the federal level. New state-level regulations are also racking up high costs.
California agencies have promulgated 18 new “major regulations” over the last three years alone, which have an annual economic impact more than $50 million each. The price of current regulations in California is estimated to cost the state nearly half a trillion dollars annually.
Issues that may not seem immediately significant to a general onlooker can become main drivers of accumulating costs. Local minimum wage increases, battles over hydraulic fracturing techniques, and regulations that would reduce ride-for-hire services such as Uber and Lyft all contribute to growing regulatory financial burdens.
Small businesses are particularly vulnerable to state and federal regulations. Since many of the costs associated with regulatory compliance are “fixed costs,” small businesses have less economy of scale capabilities to spread regulatory cost burdens throughout the firm.
Environmental regulations, tax compliance, occupational safety and health, and homeland security regulations make the top of the cost list for small firms according to a Small Business Administration Report. In addition, environmental regulations are expected to grow in number, making up the bulk of new regulations in the past decade.
Consequently, small business numbers are shrinking due to increases in federal regulation. Some experts estimate that for every 10 percent increase in regulatory costs, there is a 5-6 percent drop in the number of businesses with fewer than 20 employees.
Considering how small businesses created 64 percent of all new jobs in the U.S. between 1993 and 2011, the financial implications of new regulations are directly tied to economic growth.
The costs of new regulations are indisputably staggering. However, there may be value creation associated with new regulations as well. Lack of regulation can substantially increase risks such as environmental damages, like the BP Deepwater Horizon disaster, or food contamination, which leads to nationwide food recalls and an economic impact of nearly $16 billion annually.
Strong and effectively-implemented regulations can provide important and necessary social services and provide an important foundation for future economic growth. Improving lines of communication between the government and business, along with staying on top of regulatory proceedings is vital to the future success of the private and public sector relationship.
For more information on the burdens of regulatory risk, take a look at our new whitepaper, “Taking Control of Regulatory Risk Can Have Large Return on Investment.”