Tuesday, August 02, 2005

Do small businesses really care about regulation or is it another red herring???

Been taking some evidence from some business people - mostly people on business representative organisations. Someone was moaning that regulation is the curse of small business.

I am not convinced really. What difference would less red tape make to the bottom line of a business? When I have seen decent research ranking the challenges that businesses face themselves - competition and market conditions are always number one and regulation is way way down, below skills, transport etc.

I think a danger is that red tape could be something else we get lumped with but can do feck all about.

Red tape would be an easy win for the public sector. Surprised Gordon Brown isn't into doing more about it. But he likes to create it too.

Also - are we headed for a recession? does this kybosh Gordon B's plans to become Prime Minister if he presides over an economic catastrophe? the public's memory tends to be myopic in the face of mortgage reposessions.

Anyhow meandering thoughts continue to permeate my brain...


At 9:50 am, Anonymous David said...

"What difference would less red tape make to the bottom line of a business?".

I think the answer is... it depends on the business. Some of the effects of red tape may be entirely invisible, because they prevent businesses starting up in the first place. For example, someone planning to start a sandwich delivery business from home will probably have to have two kitchen sinks, and a seriously large fridge, in order to meet an environmental health officer's interpretation of the Food Safety Act. Two kitchen sinks? Forget it. This changes the start up budget from reasonable to pretty sizeable, and blocks most entrants unless they can raise the capital.

Elsewhere, the effects of red tape can be measured in wasted time (filling in forms, doing risk assessments against unlikely risks, etc). In some industries, it has very obvious financial effects: The chemical industry will shortly be faced by the ludicrous REACH Directive which will unnecessarily increase the costs of testing new substances to prohibitive levels.

As the wise libertarian Bastiat pointed out, you have to look for what is hidden. Financial costs are only half the picture. How many businesses and innovations are discounted or abandoned even before they are born, as the horrible costs become apparent.

I'll close with an extreme example: Airlines are (as a rule) profitable. So why isn't everyone starting one?

At 3:28 pm, Blogger Angry Economist said...

So its the costs of compliance, and the opportunity costs that are the crux of the matter it seems?

At 10:21 am, Anonymous David said...

This is only my opinion of course, but yes, I think that sums it up nicely.

Of course, some red tape is necessary - I've no doubt an unfettered business world would have children working down mines if it could. But some is excessive.


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