Small Business Is The Real Economy, And It Is Being Regulated To Death

Entrepreneurs face a thicket of rules that large corporations can absorb but they cannot

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The Compliance Costs That A Corporation Shrugs Off Can Crush A Family Enterprise

Small business is often celebrated as the backbone of the economy, the source of much employment, innovation, and opportunity. Yet small businesses face a regulatory environment of increasing complexity and burden, a thicket of rules that imposes compliance costs they struggle to bear. These costs, which large corporations can absorb with their resources and economies of scale, can crush a small family enterprise. Small business is the real economy, and it is being regulated to death by a regulatory burden that falls disproportionately on those least able to bear it.

The Asymmetry Of Compliance

Regulatory compliance imposes costs, and these costs fall unevenly. A large corporation, with its resources, legal departments, and economies of scale, can absorb the costs of compliance relatively easily, spreading them across a large operation. A small business, with limited resources and no economies of scale, finds the same compliance costs far more burdensome, consuming a larger share of its resources, demanding attention its owner can ill afford. The compliance that a corporation shrugs off can crush a small enterprise, for the costs that are minor for a large operation are major for a small one. This asymmetry means that the regulatory burden falls disproportionately on small business.

The asymmetry has significant consequences. It advantages large corporations over small businesses, for the large corporation bears the regulatory burden more easily, while the small business struggles. It can drive small businesses out of operation, unable to bear the compliance costs that the large corporation absorbs. It can deter entrepreneurship, as the regulatory burden makes starting and running a small business more difficult and costly. The asymmetry of compliance thus tilts the economy toward large corporations and against small business, against the entrepreneurship and small enterprise that are vital to a dynamic economy.

The Thicket Of Rules

Small businesses face a thicket of rules, a complex and growing body of regulation governing many aspects of their operation. Each regulation may have its own justification, but their cumulative effect is a regulatory burden of great complexity and weight. The small business owner must navigate this thicket, understanding and complying with the many rules that govern their operation, a task that demands time, resources, and expertise that the small business may lack. The complexity of the regulatory thicket is itself a burden, demanding effort and resources simply to understand and navigate the rules.

This complexity falls particularly hard on small business, for the large corporation can hire the experts to navigate the thicket, while the small business owner must navigate it themselves, often without the necessary expertise. The complexity that the corporation handles with its legal department overwhelms the small business owner, who must somehow understand and comply with a body of rules of great complexity. The thicket of rules, navigable by the corporation, can be impenetrable for the small business, imposing a burden of complexity that falls hardest on those least equipped to bear it.

The Cost To The Economy

The regulatory burden on small business carries costs for the whole economy. Small business is a vital source of employment, innovation, and opportunity, and burdening it harms these contributions. When small businesses are crushed by compliance costs, jobs are lost, innovation is stifled, opportunity is diminished. When entrepreneurship is deterred by the regulatory burden, the new enterprises that drive economic dynamism are not started. The economy as a whole suffers when small business, its vital backbone, is burdened to the point of crushing, for the contributions of small business to employment, innovation, and opportunity are diminished.

This cost to the economy is often overlooked in the imposition of regulation, which considers each rule individually rather than the cumulative burden. But the cumulative burden on small business is substantial, and its cost to the economy, in lost jobs, stifled innovation, and diminished opportunity, is significant. The regulatory burden on small business is not merely a burden on individual enterprises but a cost to the whole economy, a drag on the dynamism that small business provides. Recognizing this cost is essential to weighing the regulatory burden against the contributions of the small business it burdens.

Lightening The Burden

Small business is the real economy, vital to employment, innovation, and opportunity, and it is being burdened by a regulatory environment whose costs fall disproportionately on those least able to bear them. Lightening this burden requires recognizing the asymmetry of compliance, the disproportionate burden on small business, the cost to the economy of crushing the small enterprise. It requires considering the cumulative regulatory burden, not merely each rule individually, and reforming the regulation that crushes small business without corresponding public benefit.

This reform would relieve the disproportionate burden on small business, supporting the entrepreneurship and small enterprise vital to a dynamic economy. It requires distinguishing regulation that serves genuine public purposes from regulation whose burden on small business outweighs its benefit, and reforming the latter. Small business, the backbone of the economy, deserves a regulatory environment that does not crush it, that recognizes the disproportionate burden it bears, that supports rather than stifles the entrepreneurship and small enterprise that drive economic dynamism and provide opportunity. Lightening the regulatory burden on small business is essential to preserving the real economy it represents. See the Small Business Administration for relevant context, and the Government Accountability Office for further background.

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