Coca-Cola CEO Muhtar Kent thinks U.S. companies are at a disadvantage compared to those based elsewhere—thanks to America’s byzantine tax code and its regulatory overreach. He told the Financial Times recently that “in many respects” it is now easier to do business in places like China, where “local governments are fighting for investments with each other.” In the West, he complains, “we’re forgetting what really worked 20 years ago.”
Kent hastened to add that Coke was hiring in the U.S. and had invested $10 billion here over the past two and a half years. However, Coke is one of few who are. In recent months, American companies have been cutting their workforces in increasing numbers, according to a report from Challenger, Gray & Christmas, an outplacement consultancy group in Chicago. “We’re beginning to see patterns that are disconcerting, and the really troubling part is this: Nothing is happening in the economy that is going to boost job growth,” said Christine L. Owens, executive director of the National Employment Law Project.
HSBC has joined many banks in announcing job cuts amid regulatory uncertainty and global economic weakness. Credit Suisse plans to eliminate 2,000 positions, or 4 percent of its jobs. Goldman Sachs and Morgan Stanley are also reducing their head counts. The pharmaceutical giant Merck & Co. said it would eliminate up to 13,000 jobs—on top of 17,000 layoffs in prior actions.
Most employers say that they are reluctant to create jobs in an uncertain environment, where they are going to pay more tomorrow to comply with new regulations, from Obamacare to Dodd- Frank. The President himself even acknowledged that regulatory overreach has “stifled innovation” and has had a “chilling effect on growth and jobs.” However, his regulatory review only came up with proposed cuts representing a mere $2 billion out of a $1.7 trillion regulatory spend that won’t do anything for anybody.
It’s time to get serious. Fortunately, some politicians are getting this. New York governor Andrew Cuomo, a Democrat, recently vetoed legislation that would require manufacturers of sippy cups and baby bottles to use a warning label that the Daily News said read like a “fat paragraph from deep in the middle of a car lease.”
Last Spring Rep. Reid Ribble (R-WI), a former small business owner, introduced a bill (HR 2898) that would place a 24-month moratorium on the majority of new federal regulations, at least until unemployment falls below 7.7 percent. The effect would allow business owners to focus on growing their business instead of focusing on the growing—now at 180 million words—rules in the Federal Register.
But why stop there? Data show that reducing the size of the federal regulatory bureaucracy by even modest amounts will have significant, positive effects on both GDP and private sector jobs. In an empirical study conducted by the Phoenix Center for Advanced Legal & Economic Studies, using 50 years of data, researchers found that even a modest five percent reduction in the regulatory budget would yield an average annual boost of $75 billion and an annual average increase of more than 1.2 million net new jobs. On average, the Center found that eliminating the job of a single regulator grows the economy by $6.2 million and nearly 100 private sector jobs annually. Conversely, each million dollar increase in the regulatory budget costs the economy 420 private sector jobs.
Boost to GDP and Private Sector Jobs from Reductions in Federal Regulatory Spending
Target Budget Adjustment = -5% (12,109 federal jobs)
|Average Annual Increase||$82||1,188,197|
Source: Phoenix Center for Advanced Legal & Economic Public Policy Studies, www.phoenix-center.org
Let’s be clear: no one advocates a meat cleaver approach. There are societal benefits to some regulations. But, as Dr. T Randolph Beard, Phoenix Center Fellow and professor of economics at Auburn University, observes, “…the macroeconomic effects of regulation have not been adequately considered.” Like Nixon going to China, Obama could slay the regulatory leviathan and still come out ahead. For a cost of just over 12,000 federal regulatory jobs, he could create 1.2 million net new jobs in the private sector for his constituents — many of whom would likely show their gratitude come November of next year.