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Innovation versus government regulation

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Innovation is such a malleable word that it can be defined in a hundred different ways, throughout the hundreds of fields that require it for our country to remain competitive in the ever-competitive world. When the word innovation echoes throughout an auditorium, it elicits smiles and wide, wondering eyes. These reactions say as much about the eager listeners, and their limitless speculation, as it does the politician that echoes it in a manner that leaves the audience with the almost unassailable belief that the politician has a fundamental understanding of the manner in which innovation works its way throughout our world.

“I am announcing today, that I’m going to devote billions of taxpayer dollars to fund this new found research, done in this specific area of innovation, to provide for the breakthroughs that will make lives better for current, and future, Americans.” The teleprompter then cues the speaker to lower the microphone in anticipation of applause.

Ask any research scientist how important government grants are to the innovations that occur as a result of their research, and you’ll surely receive a unanimous reply, but is money the end all? If the innovators at Apple had received a government grant to proceed forward with the iPod, it may have greased the skids a little, but what would those skids have looked like on the other end? If Apple hadn't been forced to endure the painful trials and errors in their growth process, would Apple be Apple today? If that same little guy-- that Apple was at one time --reached the point of being Apple through government grants, and they were forced to endure the regulatory climate of the modern day, would they still be able to compete with the modern day Xerox or IBM?

“Fifty-five percent of small business owners and manufacturers say they wouldn’t start a new company today,” according to a poll conducted by the National Association of Manufacturers (NAM) cited in the Washington Examiner. The poll also finds that: “Sixty-nine percent of them say President Barack Obama’s regulatory policies have hurt their businesses.”

The president of NAM (Jay Timmons), who commissioned the poll along with the National Federation of Independent Businesses says:

“There is far too much uncertainty, too many burdensome regulations and too few policymakers willing to put aside their egos and fulfill their responsibilities to the American people. To fix this problem, we need immediate action on pro-growth tax and regulatory policies that put manufacturers in the United States in a position to compete and succeed in an ever-more competitive global economy.”{1}

Ask any innovator of yesteryear, be they the innovators at Apple, Papa John’s, et al, about the current regulatory climate in America today, and they will tell you that they’re not sure if they would've started their business. It would be far too much hassle, they would say, and far too many people (see state and federal government officials) would dictate to them how their business should be run, (and that's not even accounting for the fact that America currently has the highest corporate tax rate in the world). These established business owners would also tell you starting up a business, or being innovative in anyway, was hard enough as it was, without the degree of regulatory interference current innovators face.

A September 27, 2012 Forbes article cites the following story:

(A small business owner) that was forced to lay off 5 employees for the first time in her company’s 13 year history found that while her former employees were generally able to find new work quickly, most retained her company’s health insurance. Why? Federal regulation required her to pay 65% of their COBRA—a far bigger contribution than new employers could pay—for an entire 18 months. She was stuck.

“Then—Voila!–programs emerged to reimburse the heavy COBRA (Consolidated Omnibus Budget Reconciliation Act) requirements from federal funds. All (this small business owner) could do was laugh and shake her head sadly. More paperwork. More records. And an insurance premium larger than before the layoff, which had to be paid on time in a market where access to credit was gone. Eventual reimbursement was little consolation for her, and simply served to add to the national debt. Meanwhile, her unemployment tax tripled.”

Most bureaucrats know that they can’t please all of the people all of the time, even in this climate of overwhelming regulation. These bureaucrats usually hear from a political action committee, one that represents business owners such as the one above, that states that their constituents have been almost irreparably damaged by a piece of legislation the bureaucrats have passed. To attempt to rectify this damage, these bureaucrats pass more regulation, and cause more headaches, and heartaches, until fifty-five percent of established businesses say that if their innovative idea were in its infancy today, there’s no way they could compete.

If an individual wants to assign evil intentions to the actions of these government bureaucrats they can, of course, but some are more inclined to believe that these individuals simply don’t know how the invisible hands of current bureaucrats in Washington work. This misuse of Adam Smith’s metaphor was intended to show that current, government bureaucrats in Washington are so lacking in business sense, that they probably believe that Smith was talking about the manner in which they should use their invisible hands in the marketplace to tweak it in a manner that rectifies all inequities.

The obvious reaction, in a more rational world, would be for government bureaucrats to realize that some of their regulations have caused so much undue harm in the marketplace that leads current small business owners and manufacturers to state:

  • 55 percent say they would not start a business today given what they know now and in the current environment.
  • 69 percent of small business owners and manufacturers say current federal regulatory policies have hurt American small businesses and manufacturers.
  • 67 percent say there is too much uncertainty in the market today to expand, grow or hire new workers.
  • 54 percent say other countries like China and India are more supportive of their small businesses and manufacturers than the United States.{2}

The greatest innovators, in any era, are usually the little guys that come up with that one brilliant idea that the big guys are usually too big to see. The little guys are also the ones that government bureaucrats state that they are seeking to protect with the bills they pass. Yet, in most occasions, when a bureaucrat steps forth to manipulate the market with government legislation, the big guys usually hire a team, or a department, to deal with it. When no one knows how bureaucrats are going to act, or react, to current climates in the business world, the big guys usually have a strong enough foundation to weather the storm. The little guys usually fold up their tent, if they were foolish enough to erect it at all.

As Jonah Goldberg details, in his Los Angeles Times piece:

Economist Deirdre McCloskey notes that until the 19th century, innovation was a negative word because innovators upset the established order and the powers that be.”

Goldberg further quotes McCloskey, in her book, Bourgeois Dignity: Why Economics Can't Explain the Modern World:

For all of human history, humans lived on about $3 a day, using today’s dollars. For 200,000 years, the line was essentially flat until around 1800, when a culture that valued innovation spread from England to Europe and the New World. Since then, wealth has skyrocketed, all thanks to a culture willing to let innovators pull up the stakes of the existing stakeholders.”{3}

The stakes, in this analogy, are government regulations that, ostensibly, prevent the tent from flying away. Yet when current, established businesses look back to their business's infancy, they state that those stakes have become so abundant, and cumbersome, that they're no longer preventing harm, but impeding the view of future innovators that should believe that the sky is the limit. No matter how often the powers that be make the word innovation a staple of their speeches, they are making it a naughty word again, because it upsets their established order.

{1}http://washingtonexaminer.com/55-percent-of-small-business-owners-would-not-start-company-today-blame-obama/article/2509069#.UGOmPEKQlRF

{2} http://www.forbes.com/sites/alanhall/2012/09/27/new-poll-55-of-small-biz-owners-would-not-start-companies-today-69-say-regulation-has-harmed-their-businesses/

{3}http://www.latimes.com/opinion/commentary/la-oe-0225-goldberg-stakeholders-government-20140225,0,3834159.column#ixzz2uN0qjQ9O

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