The “license Raj” is an epithet often used for India’s byzantine code of rules and regulations on businesses under the central-planning system finally dismantled in part in the 1990s. The Economist applies the term to the United States, which buries entrepreneurs under layers of federal, state, and local red tape. According to the Competitive Enterprise Institute, the gross cost of federal regulations alone amounts to about $15,000 per household per year, and that doesn’t include the accumulated debt of lost growth due to regulation, which may be much higher. And none of that includes the costs of state and local regulations, such as occupational licensing, which has increased dramatically in the last 60 years, now covering up to 35% of the workforce.
The Economist cites thumbtack.com surveys showing that small business owners care more about the burden of regulation than taxation (about two-thirds of them say that they pay their “fair share” in taxes, as opposed to more or less than their fair share). This preference comes as no surprise to me. Apart from the soul-deadening effects of endlessly parsing legalese and filling out form after form, regulation also tends to substitute the grand (or petty) design of a bureaucrat or politician for the price signals the market provides. When regulation limits competition under the pretense of ensuring quality for the consumer, incumbent producers benefit, but potential upstarts lose, and so do consumers. There is a net cost to society. When local governments require construction companies to obtain permits for every little thing they do, rather than simply requiring them to post a bond and pay for any damage they may cause to local infrastructure or neighboring buildings, less desirable construction happens, and the costs of regulatory compliance are also pure loss.
The thumbtack.com ratings of state regulatory environment correlate highly with both Chief Executive magazine’s survey of CEOs on state regulation and with the regulatory index found in Freedom in the 50 States. CEOs of large companies and small-business owners really want the same thing: a streamlined government that works. We’re not as bad as Argentina or Belarus, but here in the U.S., we suffer from plenty of kludge, and everyone pays the price.