Regulation: Enough Is Enough

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There is an old saying that a society that attempts to micromanage the regulatory process is a society in demise. Self-regulation and accountability by individuals and businesses is very important; however, when it is compromised, such as has taken place with many of the recent scandals, society as a whole suffers. While regulation is needed, like a pendulum swinging, it can lead to extremes in an attempt to correct the abuses or a “throwing the baby out with the bathwater” mentality. Here are some examples of regulation and its impact on everyday businesses with which I have come in contact.

Dairy Processing

One of my former students at Cornell University owns a value-added dairy processing business. She and her husband are closing their doors at year-end. Their reason is increased regulation and oversight, as well as little consistency in the inspection processes.

Hair Styling

Next, the person who cuts my hair (I guess I am lucky to still have some) plans to close his business and lay off three workers next June, after 35 years in the business. His reason is the burden of local, state, and federal government regulation has become overwhelming. Paperwork and compliance initiatives involve too much of his time, which is taking away not only from profits, but just the enjoyment of being able to provide a service in the community.

Chicken Potpies

My fourth example is a lady who has provided our creamery’s retail store with chicken potpies for a number of years. She is closing her small business’ doors because of regulatory issues and changes.

Banking

Today, with the implementation of the Dodd-Frank Act, which regulates banking and financial services, every banker is under pressure. Many estimate before increased regulatory reform, about 5% of the banking activities were related to regulatory compliance. Today, many banks estimate that one-third of a banker’s time is spent in regulatory compliance. Some state this is taking the fun out of banking because of the additional paperwork. Bank of America is laying off 40,000 employees, which is related to the regulatory burden. Smaller community banks are facing issues as well, leading to the sale or merger of some banks.

Granted, some of these are only small cases, but they illustrate some of the reasons for a stagnant economy. Yes, regulation and oversight is needed at all levels; however, costs appear to be outstripping the benefits to small business and agriculture, two main drivers of the U.S. economy.

 

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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