A small business executive order: Justification for regulation
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Successful entrepreneurs solve problems in the marketplace and continually evaluate how they are spending their time and resources. Before they embark on major shifts in strategy or investments they conduct a deep dive to validate trends and their instincts. They consider the potential downside of bold changes, and seek outside counsel prior to making significant moves.  It’s about time our government does the same when it comes to regulation.

My small business members are dazed by the onslaught of regulations that continue to pour out of federal government agencies. The most common questions they pose about the explosion in new regulations are: “What is the actual problem they are trying to fix?” and “Where is the market broken?” or “Why the hell are they doing this?”

Fair questions. And these are the type of queries all federal departments and agencies need to answer, and receive public and small business feedback on, prior to the development of most rule making.


Federal regulators will say, “Oh yes, we do that.” No you don’t. The framework and specifics of most regulations have largely been completed before asking for public input. Very early in the regulatory process, regulators make up their minds that 1.) they are going to act, and 2.) what they are going to do. If small businesses are lucky, they may get a tiny tweak in a final rule in response to their overwhelming feedback that the rule is poorly conceived and will impose burdensome costs. This needs to change.

In fact, reforming the entire regulatory process is long overdue. The Administrative Procedure Act (APA) is a dinosaur. As the House Judiciary Committee points out, "In the 67 years since it was enacted on June 11, 1946, the APA has never been modernized." The absence of reform has created a massively powerful, unaccountable and obscure bureaucracy that is taking advantage of an archaic and complicated process that is easily politicized and manipulated.

Regulations are smothering our businesses, especially small businesses. Can we just agree that the $2 trillion regulatory price tag is excessive? Federal mandates and red tape have vastly harmed U.S. competitiveness and entrepreneurship. The 2017 Forbes Best Countries for Business study, for example, puts the U.S. at #23.  

In 2006, we were #1. Gallup’s most recent Small Business Index puts regulation as a top concern, along with taxes and healthcare. In early January, Gallup also reported that Americans view “big government” as the biggest threat (67 percent) to the country’s future versus big business (26 percent) or big labor (5 percent). Reining in government’s power and red tape is an issue most Americans agree upon. 

President Obama’s stab at regulatory accountability in 2011 as embodied in Executive Order 13563 could have produced positive regulatory outcomes. For the most part it was ignored. Regulators were more interested in regulating and focusing on the president’s other executive orders (producing more regulations) such as Fair Pay and Safe Workplaces, climate change and various memorandum directives, which brought us the overreaching overtime rule. Let’s just say the bully pulpit was vastly underutilized in terms of implementing an Executive Order that could have been helpful for our economy and small businesses.

Thankfully, there is bipartisan support in the Congress for requiring agencies to provide rationale for new regulation. In the last Congress, for example, Senators James LankfordJames Paul LankfordMcConnell says he would give Trump-backed coronavirus deal a vote in Senate Senators push for Turkey sanctions after reports Ankara used Russian system to detect US-made jets McConnell: Plan is to confirm Trump's Supreme Court pick before election MORE (R-OK) and Heidi HeitkampMary (Heidi) Kathryn HeitkampThe Hill's Morning Report - Sponsored by JobsOhio - Showdown: Trump-Biden debate likely to be nasty Senate Democrats want to avoid Kavanaugh 2.0 Harris faces pivotal moment with Supreme Court battle MORE (D-ND) introduced the Principled Rulemaking Act, which among other things “requires agencies, before promulgating, to specifically identify the problem to be addressed” among other measures to improve the regulatory process in its early stages.  The bill, which codifies portions of President Obama’s executive order (as well as one issued by President Clinton in 1993), passed committee but did not get a floor vote in the Senate.

The Lankford-Heitkamp bipartisan effort (a package of three bills) also includes early and meaningful participation of stakeholders in the regulatory process.  The Regulatory Accountability Act of 2017 (H.R. 5), a comprehensive bill that modernizes and strengthens transparency and accountability in our regulatory system (and which passed on January 11), includes important provisions to enhance up-front and public participation. 

President-elect Donald TrumpDonald John TrumpMore than 300 military family members endorse Biden Five takeaways from the final Trump-Biden debate Biden: 'I would transition from the oil industry' MORE can make an effective first-start through an Executive Order requiring all agencies to aggressively pursue early public input and to issue “Justification for Regulation” statements as the first step in promulgating new rules. 

These statements need to be in plain English, provide links to data or scientific research that is being used to substantiate action, and ideally be no longer than one-page in length.  They need to include measures embedded in the Principled Rulemaking Act and H.R. 5, which will help answer those important small business owner questions noted above.

Our economy and small businesses are being weighed down by excessive red tape. Early, inclusive and robust participation in the regulatory process are key to creating a system that is fair, neutral, and rationale.

Karen Kerrigan is president and chief executive officer of the Small Business & Entrepreneurship Council. Follow her @KarenKerrigan.

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