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Actually, Despite GOP Claims -- the U.S. Isn't Over-regulated

Posted: 11/29/2011 1:22 pm

The GOP presidential candidates believe, as an article of faith, that the United States is an overly-regulated society. They want to eliminate "unnecessary" regulations and even entire regulatory agencies to, in their view, unleash the growth potential of American business. Governor Perry wants to eliminate 3 federal regulatory agencies (2 he named; one whose name he couldn't remember), Ron Paul wants to eliminate 5 agencies, and so on (Republican Presidential Debate, November 9th 2011).

The GOP candidates claim that the U.S. regulatory environment is not competitive with that of our peer group, and risks losing jobs to other countries. Still another article of faith among GOP candidates is that the regulatory scheme has worsened under President Obama.

I describe these as "articles of faith", because to my knowledge -- they have not shown any non-partisan research, or international benchmarks, to demonstrate that our overall regulatory environment is particularly burdensome.

Leaving aside the GOP candidates' anecdotal views, it is helpful to examine real data that compares the U.S. regulatory burden with that of our peer group. The World Bank conveniently prepares an Ease of Doing Business Index (Index) whereby:

'Economies are ranked on their ease of doing business, from 1 - 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2011.'

As with any index of this nature, this Index is not a perfect proxy for each country's actual level of regulatory burden. Nonetheless, it is a good indicator of how the U.S. compares to its peer group and to a list of 183 other countries. The Index examines: starting a business, protecting investors, enforcing contracts, among other relevant topics. The Index data can be sorted three ways:

1. Large Countries (List 1 below): I view this as our peer group. In this category, the U.S. is the easiest country where one can do business.
2. High Income Countries (List 2 below): In this category, the U.S. is the fourth easiest for doing business, behind several much smaller high-income countries.
3. All Countries (List 3 below, including many under-developed countries): Again, the U.S. ranks fourth.

The World Bank Index samples 10 regulatory categories, so is not exhaustive across all regulations. But it clearly shows that overall -- we are among the easiest of countries in which to conduct business, particularly when compared with our peers.

As for the Obama administration's performance, a recent General Accounting Office study found no particular increase in the regulatory burden by comparison with the preceding Bush administration (Bloomberg News, 'Obama Wrote 5% Fewer Rules Than Bush', October 25, 2011).

Finally, an additional interesting piece of data comes from a recent survey of high net worth entrepreneurs in China -- 60% of which are considering emigrating, most to the U.S. The reasons cited include: the strength of the American regulatory system -- and the resulting safety of our food, environment, workplace, etc. (Bloomberg Business Week,'China's Super-Rich Buy a Better Life Abroad', November 22, 2011).

Not every regulation or law in the U.S. is perfect; not every regulator is a paragon of virtue. We can all name individual failures. Certainly, we should strive, as a country, to be the best we can be, and compare ourselves against international standards. But we cannot make our economy stronger or more competitive by making judgments and major structural changes based on faith -- rather than reality.

The data collected for the U.S. and its peer group -- over several years -- does not show that the U.S. has a systematically bad regulatory environment. But if we eliminate several major regulators (e.g., EPA) we:

a) Will likely make our country significantly less safe, less healthy, and more unpleasant,
b) Won't improve our international competitiveness, and
c) May actually dissuade foreign investors from coming to the U.S.

What do you think?

List 1: Large Countries Ranked for Ease of Doing Business (Top 5)
1. U.S.
2. UK
3. Republic of Korea
4. Saudi Arabia
5. Canada

List 2: High Income Countries Ranked for Ease of Doing Business (Top 5)
1. Singapore
2. Hong Kong
3. New Zealand
4. U.S.
5. Denmark

List 3: All Countries Ranked for Ease of Doing Business (Top 5)
1. Singapore
2. Hong Kong
3. New Zealand
4. U.S.
5. Denmark

Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation. He will be an Advanced Leadership Fellow at Harvard University for 2011-2012. He has a Ph.D. in Management from Yale University. Follow him on Twitter @steven_strauss.

 

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