Red tape reform is the key to building again

Greg Nash

It’s a consistent refrain heard today from politicians and pundits of all stripes: America needs to start building again. These calls include many priorities, but what unifies them is the belief that the nation needs to develop new innovations and industries to improve worker opportunities, economic growth and U.S. global competitive standing.

For “building again” to become more than just a catch line, however, concrete policy reforms are needed. For starters, we need to cut back the thicket of red tape and stifling bureaucratic procedures that limit the productiveness of the American workforce.

Consider some dismal facts about the red tape burden in the United States and how it affects economic dynamism and worker opportunities. A recent study by the Economic Innovation Group noted that since the 1980s, the new business startup rate has been trending downwards, and the number of Americans employed in startups has fallen by one-half.

There’s less churn in many specific sectors, too, with incumbent firms holding onto positions of dominance for longer periods of time. While the authors note that many factors are at work, the relationship between excessive red tape and declining dynamism deserves special attention. They note how regulatory complexity “is a gift to large incumbents and vested interests all the same.”

Regulatory accumulation has become a chronic problem in the United States, creating many obstacles to getting new ideas and projects off the drawing board. Mercatus Center economists have documented how “the buildup of more and more regulatory restrictions distorts and deters the business investments that drive innovation and economic growth,” resulting in fewer jobs, higher prices and lower wages.

2016 Mercatus study found that U.S. economic growth has on average been slowed by 0.8 percent per year since 1980 from the cumulative effects of regulation. The authors noted that the U.S. economy would have been about 25 percent larger than it was in 2012 if regulation had remained near the same aggregate level during that time.

Unfortunately, red tape rarely gets eliminated once imposed. A 2017 survey of U.S. code by Deloitte consultants revealed that 68 percent of federal regulations have never been updated, and 17 percent have been updated only once. America now has what the World Economic Forum refers to as a “regulate-and-forget” system in which older rules are almost never revisited even after they become obsolete or ineffective. This is a recipe for economic stagnation. No wonder, then, that headlines wonder “Why We Can’t Build” anymore.

Red tape is holding back progress on other important priorities. Despite a push by the Biden administration to reduce carbon emissions, Bloombergrecently highlighted the “daunting maze of environmental concerns and permitting requirements that stand in the way of thousands of carbon capture projects.” But the Biden administration made matters worse by recently reimposing provisions of the National Environmental Policy Act (NEPA), which the Trump administration had relaxed to accelerate infrastructure projects and other development efforts. NEPA is known to create major paperwork nightmares and project delays, with minimum environmental benefit.

State and local reforms are also needed to get America building again. Economist James Broughel has cataloged the troubling growth of regulatory restrictions by states and the various proposals being formulated to address them. He has highlighted how Ohio, Idaho and Rhode Island are paving the way to get building again by adopting bold red-tape rollbacks.

Local officials must act, too. Building really begins at the city and county level with smart policies that allow for creative development and better housing strategies. Unfortunately, as my colleagues Emily Hamilton and Salim Furth have documented, “not in my backyard” (NIMBY) policies remain the norm in too many places, with anti-development roadblocks and permitting processes multiplying everywhere. Experts increasingly use the term “vetocracy” to describe the many veto points within modern political systems that hold back innovation, development and economic opportunity. Vetocracy is what happens when NIMBYism becomes the guiding philosophy within state and local regulatory processes.

Government officials at all levels will need to be willing to move beyond NIMBYism and toward a YIMBY (yes in my backyard) mindset if we ever hope to overcome vetocracy and get America building again. To get there, red tape reform should be priority number one.

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University and the author of “Evasive Entrepreneurs and the Future of Governance.”

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