Is government regulation holding back business investment?

There is no question, business fears government regulation. That's one big reason why business is not investing, "they" say.  But are "they" right? 

It is true that business fears government regulation. It is not true that government regulation hinders business growth.

100 years ago my great grandfather, William A. Draves I, co-founded Chain Belt, a manufacturing company that made, well, chain belts. The company testified before Congress, opposing the 8 hour work day. The company told the Senate Chairman on Education and Labor, "It is impossible for us to restrict our labor to eight hours and meet competition either in America or abroad."  (sound like a familiar argument?)

Of course Congress passed the eight-hour day bill. And what happened to Chain Belt? It grew to become a Fortune 500 company.  At one time in the last century it was one of the country's 500 largest companies.

The lesson: business does not understand that government has to make new rules, new laws, new regulations in the new economy, not only to protect society but also to stimulate business growth.

Comments

[D. P. Lubic]

I can't really comment on whether regulation or the threat of same is having a chilling effect on business. What I do know is that a friend of mine told me about business in Harpers Ferry, in what was then Virginia, at the time of John Brown's raid in 1859.

This friend was a ranger for the US Park service in Harpers Ferry, and one of his jobs was to talk to people about the town, tell stories about it for the modern audience. One of them was that Harpers Ferry was a boomtown in 1859, with hundreds of government employees in the armory there making $30 dollars a month when the average American farmer had a cash income of $125 for a whole year.

This was a lot of money for that time coming into a relatively small place, and a lot of business owners tried to cash in on it, opening up various shops such as opticians shops, dry goods stores, boot shops, and lots and lots of saloons. The business situation was very competitive; the average life expectancy of a business was only about 6 months.

Jump ahead 150 years to today. Until relatively recently, if you spoke to someone from the Small Business Administration, he would tell you that about 50% of all small business start-ups in any given year would fail in the first year, and up to 90% would fail in the first five years. (Recently, there have been studies to suggest that the failure ratio is 33% in the first year, another 33% in the first 5, and maybe 33% would make it to 10 years, but all these new numbers sound a little optimistic to me.)

That traditional failure rate, particularly the 50% crash rate in the first year, works out pretty close to that 6-month business life expectancy in 1859. And in 1859, there was no income tax, no state sales tax, no business & occupation tax, no unemployment tax, no Social Security tax, no Medicare tax, no workers compensation tax, no minimum wage law, no overtime law, no child labor law, no enforced medical leave law, no health code, no building code, in short--no nothing. . .

What this tells me is not that regulation hurts or benefits business, but that the secret of success in business is where it has always been--in the brains of the management, combined with a bit of luck in being in the right place at the right time. . .esxentially, the same secret of success back in the days of the ancient Phonetians so long ago.