Speaking to group of technology entrepreneurs in Salt Lake City recently, the Utah Republican said the “increasing and omnipresent federal regulatory system” is producing rules made secretly by bureaucrats, is costly to American business, disproportionately harms the poor and middle class, stifles job creation and tends to protect large companies against competition from startups.
U.S. Sen. Mike Lee wants to reform what he calls “the modern federal regulatory state.”
Speaking to group of technology entrepreneurs in Salt Lake City recently, the Utah Republican said the “increasing and omnipresent federal regulatory system” is producing rules made secretly by bureaucrats, is costly to American business, disproportionately harms the poor and middle class, stifles job creation and tends to protect large companies against competition from startups.
Startups, he said, are a particularly harmful target because studies have shown that all net new job growth in the U.S. comes from companies that are 5 years old or younger. Another study has shown that half of startups fail within their first five years, meaning that half of startups are responsible for all net new job growth.
For that reason, it’s important to tackle government policies that make it more difficult for business startups, “because it’s business startups that give us the greatest chance of helping the poor get out of poverty and helping the middle class get ahead,” he told a group at the Church & State incubator.
Currently, federal regulations are “made mostly, I’d say almost entirely, in secret by bureaucrats,” he said. He described them as hard-working, well-educated and well-intentioned but added that they are not accountable to the people because they never stand for election.
“Now, I want to be clear about something. This is a problem of bipartisan creation. Both Democrats and Republicans have contributed to this, because Congress, over the course of many decades — while Congress has been controlled by Democrats and while Congress has been controlled by Republicans — has been outsourcing the task of making law, over and over and over again,” he said.
Congress typically has passed broad provisions but then delegated to executive branch agencies the task of making rules and regulations, he said.
As for costs, Lee said that when he was in law school 20 years ago, the cost of complying with mid-1990s regulations was about $300 billion annually, but the figure has ballooned to $2 trillion.
“All of those things over time add up, and they cost a lot of money. The full merits of those laws – and they really are laws – are never fully debated and discussed with the American people, simply because of the fact that those who make them and put them in place are not themselves elected by the people, they’re not accountable to the people, they don’t have the same incentive to make sure that people aren’t unduly harmed as a result,” Lee said.
Those regulations also are obscure and unknown to most Americans. “And even though they’re affected by them, their real impact is often invisible and difficult to calculate and quantify for the typical American,” he said.
Lee said he learned in law school that the cost of companies complying with federal regulation is not borne by wealthy Americans or by “some nameless, faceless, wealthy corporation.”
“It’s borne only by hardworking Americans, especially poor and middle class Americans, who are most severely affected by these regulatory compliance costs. Hardworking poor, middle-class Americans pay for regulatory compliance costs; they just pay for it from increased prices on goods and services — everything they buy. They also pay for it with diminished wages and unemployment. …”
Making the matter worse is “a really pernicious effect” of regulations, which is that they tend to crowd out competition and protect large corporations, he added.
“If you’re a large mega-corporation — let’s say if you’re General Electric or you’re General Motors or you’re IBM — you can afford to have an army of regulatory compliance officers, an army of lobbyists, an army of lawyers, an army of accountants to make sure you’re complying with those regulations, to make sure that those regulations don’t affect you in too vast a way.
“If you’re a startup, you can’t afford that army. You can’t compete with that. That creates … an additional barrier to entry and makes it harder for you to enter the market. And because it makes it harder for you as a startup to enter the market, it also makes it harder for the economy to generate new jobs.”
Lee suggested two ways to fix the regulatory system. One would increase the accountability of government by requiring congressional approval of new federal regulations. Another would restrict the total regulatory compliance costs that the regulatory system can impose.
The framework of Lee’s presentation was how government should not replace the formation of natural, organic networks or communities. Government attempts to circumvent the free market have often proved costly and fruitless. But the free market has produced innovations such as fracking that created an energy boom, and the Wright brothers were better than an expensive government-sponsored attempt to build a flying machine.
“Government’s job is to protect the Wright brothers’ and the fracking industry’s abilities to test their ideas, not to try to compete with them and certainly not to try to shut them down,” Lee said, adding that innovation is almost unavoidably a messy, difficult process of trial and error. “Once government gets involved, especially the massive and detached federal government, the trials tend to stop and we’re all left with the errors.”
Lee said that some people simply want to cut big government but he insisted that a focus should be on fixing government that is broken. He used the mullet hairstyle as an analogy, saying trimming an ugly mullet nonetheless leaves a person with an ugly mullet.
“[There is] nothing you could do just by getting a slightly shorter mullet that would make the mullet cool today. By the same token, if you just shrink government as it exists today, you’re not necessarily going to be fixing the problem,” he said. “Just like a slightly shorter mullet, it’s still ugly today. A slightly smaller broken government is still broken.”
Lee’s appearance was hosted by Church & State, DevPoint Labs, The Iron Yard and Beehive Startups.
Read more:The Enterprise - Lee looking for way out of the federal regulatory state