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Business Slips in Regulatory Mire

Regulation sometimes produces litigation as companies get bogged down with new laws

(Page 2 of 2)

One measure of regulations' impact on business is to look at job creation, say advocates of small and mid-sized business. While large corporations continue to downsize, small and medium-sized firms have been the biggest job generators in recent years.

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The National Federation of Independent Business, a Washington-based lobbying group for more than 600,000 members (many small and mid-sized firms), calls the federal regulatory environment most damaging to job creation. Weighted down with federal mandates, employers are burdened by compliance costs that they could otherwise channel into expansion, NFIB economists say.

``Environmentalism is the largest, most costly, most burdensome part of government regulation on the economy,'' says Murray Weidenbaum, director of the Center for the Study of American Business at Washington University in St. Louis.

The EPA's budget accounts for roughly one-third of the overall federal regulatory budget, according to a study by economists Wayne Gray of Clark University and Ronald Shadbegian of the Center for Economic Studies at the US Bureau of the Census. They calculate that manufacturers spent $17 billion in operating costs and $6 billion in capital outlays for pollution abatement in 1990.

The study, done for the National Bureau of Economic Research, finds that the toll on productivity is increasing. Examining output at pulp and paper mills, oil refineries, and steel mills, the economists found that pollution abatement costs cut into productivity in all three sectors: by 5.3 percent for paper, 3.1 percent for oil, and 7.6 percent for steel.

Entrepreneurs hardest hit

Fledgling companies suffer the most, says Jonathan Adler, an environmental policy analyst with the Competitive Enterprise Institute in Washington. By way of example, he details the plight of the dry-cleaning industry.

That industry, Mr. Adler says, must fill out up to 100 forms, pay exhorbitant start-up fees, acquire burdensome permits, and follow laborious reporting requirements. Here is how the average mom and pop dry-cleaning shop is affected:

r It is subject to OSHA requirements governing worker exposure to cleaning chemicals.

r It must follow new mandates on emissions under the Clean Air Act Amendments of 1990.

r It is liable for Superfund violations concerning groundwater contamination.

r It must follow proper handling procedures for garments in order to avoid exposure to AIDS.

The net effect, Adler says, is that ``more dry cleaners close their doors and fewer are established to take their place.''

US Treasury Secretary Lloyd Bentsen says the Clinton administration is offering relief to small entrepreneurs and boosting economic activity by easing banking regulations.

``The administration's targets,'' Mr. Bentsen says, ``were the ridiculous reporting requirements that prevented bankers from making loans to small businesses and that required expensive appraisals on small pieces of real estate.'' The federal government is streamlining regulatory bodies ``to cut down on excessive, wasteful, and contradictory regulations [and increasing] the expensing allotment for small business, to help them buy new equipment and create more jobs....''

But even the most affordable, accessible credit does not mitigate the damage from prohibitive regulations, Adler says.

Mr. Boskin laments that the bush is thick with regulatory growth. ``At the CEA we felt like we were wielding a machete in a jungle, chopping down dozens of bad regulatory proposals every week,'' he says. The ``executive branch needs an effective set of organizations, and more importantly, people in positions of power and influence who have the intellectual capability, political skills, and guts to stand up to the nonsensical regulations that percolate up from the agencies, down from Capitol Hill, and - even in a Republican administration - from Cabinet level or above.''