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The Numbers Behind a Non-Competitive Economy

Posted by Christopher Geehern on Jun 13, 2013 9:01:00 AM

American employers have long been convinced that inefficient regulation and bureaucratic governmental institutions make it harder to run a business in the United States than elsewhere.  

Small businessTurns out, they’re right. Harvard historian Niall Ferguson argues in a book to be published today, and in an adaptation in the Wall Street Journal this week, that economic growth in the United States is being undermined by creaky regulation, staggeringly complex legislation and a court system choked by frivolous litigation.

Ferguson argues more broadly in The Great Degeneration:How Institutions Decay and Economies Die, that the central institutions of Western democracy - representative government, the free market, the rule of law and civil society, are all in decline.

“If poor countries can get rich by improving their institutions, is it not possible that rich countries can get poor by allowing their institutions to degenerate?” Ferguson asks in the Journal.

He says the numbers leave little doubt that American entrepreneurs face an uphill battle:

  • The World Bank defines “red tape” by measuring the total number of days it takes entrepreneurs to start a business, obtain a construction permit, register a property, pay taxes, get an export or import license and enforce a contract.  The time period to accomplish those tasks in the U.S. has increased 18 percent from 368 to 433 days during the past seven years, an increase that places the nation in the bottom 10 worldwide along with Zimbabwe, Burundi and Yemen.
  • The U.S. score in the World Economic Forum Global Competitiveness Index has declined by six percent in the past decade, while China has improved its score by 12 percent. Business executives responding to the Forum’s most recent survey cited “inefficient government bureaucracy,” taxes and tax regulation as the most problematic factors for doing business in the United States.
  • The U.S. ranking for its legal system and property rights has dropped from ninth in the world in 2000 (9.23 out of a possible 10) to 33rd in 2010 (7.12 of a possible 10), according to the Fraser Institute’s Economic Freedom Index.
  • A separate evaluation of the U.S. legal system by the World Justice Project ranks the nation 17th out of 97 countries for the extent to which the law limits the power of government, 19th for regulatory enforcement and 22nd for access to civil justice. Ferguson points out that the ranking place the U.S. near the bottom of former British colonies, behind New Zealand, Australia, Canada and Hong Kong.

The news is even more sobering for employers doing business in highly regulated, high-cost states like Massachusetts.  Ferguson notes in the Journal that the pace of institutional degeneration is not uniform. He maintains that the nation’s four primary growth corridors – the Great Plains, the Gulf Coast, the Intermountain West and the Southeast – “are growing not just because they have natural resources but also because state governments in those regions are significantly more friendly to business.”

Ferguson is not the only researcher to underscore the growing friability of key American economic institutions. Michael Porter of Harvard Business School last year asked alumni to indentify the areas where the United States was falling behind other countries. The most common responses – the effectiveness of the political system, the K-12 education system and the complexity of the tax code.

Associated Industries of Massachusetts believes that the cost and sheer complexity of starting a business here in the commonwealth often acts as an unseen brake on the innovation, discovery and entrepreneurship that are the Bay State’s most visible economic strengths. That complexity is about to increase as Massachusetts prepares to implement the 906-page Affordable Care Act and its thousands of pages of accompanying regulations.

It already takes 433 days to get a business on its feet in the United States. Business people can’t wait another day.

Topics: Regulation, Issues, Economy

It's Put Up or Shut Up for Employers on Regulatory Reform

Posted by Brad MacDougall on Mar 21, 2012 10:38:00 AM

It’s put up or shut up time for Massachusetts employers on the issue of regulatory reform.

Regulatory ReformAn advisory committee that includes AIM is inviting Massachusetts employers to identify outdated or burdensome regulations that should be included in the Patrick administration’s sweeping reform of more than 1,000 state business rules.

The committee of a dozen employers and business organizations held its first meeting recently at the AIM offices in Boston. Among the organizers of the group is AIM Director Michael Hogan, President and Chief Executive Officer of A.D. Makepeace Company in Wareham, who last year chaired the regulatory reform working group as a member of the Governor’s Economic Development Planning Council.

“Cutting regulatory red tape is one of the best ways to accelerate job growth in Massachusetts,” said Richard C. Lord, President and CEO of AIM and a member of the advisory committee.

“Employers have a unique opportunity to bring to the attention of state government those regulations that are inefficient, unnecessary and ineffective. But nothing will happen if employers do not speak up.”

Lord is encouraging employers to identify for the advisory committee by April 10 any state regulation that inhibits business growth without producing measurable benefit for the citizens of the commonwealth. Employers should email a description of the regulation, along with their contact information, to my attention at AIM, bmacdougall@aimnet.org

The Patrick administration says it has already reviewed more than 200 old regulations across nearly 60 state agencies. Of those already reviewed, 41 will be rescinded and 107 will be improved, including 25 changes to adopt a national model or standard. These recommended changes cover a wide range of topics and include streamlining licensing requirements, simplifying standards for business practices, and eliminating duplicative reporting requirements.

The Executive Office of Housing & Economic Development has also appointed April Anderson Lamoureux, Assistant Secretary for Economic Development, to act as a regulatory “ombudsman” between the administration and business leaders on the topic of regulation.

Inefficient regulation places a huge burden in the economy. A study by researchers Nicole Crain and Mark Crain found that U.S. employers spent $1.75 trillion – or $10,585 in per employee – to comply with federal regulations alone in 2008. The compliance tab amounted to 14 percent of U.S. national income. Add the federal tax burden of 21 percent and one out of every three dollars earned in the United States goes to comply with federal laws and regulations.

The financial load falls disproportionately on small companies with fewer than 20 employees. That means regulatory expenses choke the very entrepreneurial ventures we count on to drive the innovation-based Massachusetts economy.

Topics: Regulation, Issues

Cutting Red Tape Will Accelerate Job Growth in Massachusetts

Posted by Rick Lord on Mar 5, 2012 1:53:00 PM

Cutting regulatory red tape is one of most efficient ways to promote job growth.

RegulationAssociated Industries of Massachusetts has for years fought to reduce unnecessary and outdated regulations that discourage business and employment expansion. We are therefore encouraged by Governor Deval Patrick’s announcement today that the commonwealth will undertake a sweeping reform of more than 1,000 state regulations and, separately, require business impact statements for new regulations.

“We are focusing our regulations on what’s necessary, and eliminating what’s not,” Governor Patrick said. “We will continue cutting unnecessary red tape, and by doing so, we will demonstrate once again why Massachusetts is the best state in the country to do business.”

The regulatory reform will be the first in Massachusetts since 1996. The administration hopes to find at least 250 rules that can be streamlined or rescinded, reducing burdens on small businesses and improving government efficiencies.  State agencies have been directed to consider the appropriateness of adopting national models or standards to align the state’s practices with those in place elsewhere in the country.

The governor’s initiative comes a year after the Legislature backed a proposal developed by AIM and sponsored by Senators Michael Rodrigues and Michael Moore to require state agencies to report publicly on the potential impact of any new regulation on Massachusetts business. The two moves together provide Massachusetts with an unprecedented opportunity to address rules that may sound reasonable on their own but impose a huge economic and social burden on the commonwealth.

How heavy is that burden? The economic cost of regulation is hard to quantify on a state level, but a study by researchers Nicole Crain and Mark Crain found that U.S. employers spent $1.75 trillion – or $10,585 in per employee – to comply with federal regulations alone in 2008. The compliance tab amounted to 14 percent of U.S. national income. Add the federal tax burden of 21 percent and one out of every three dollars earned in the United States goes to comply with federal laws and regulations. 

The financial load falls disproportionately on small companies with fewer than 20 employees. That means regulatory expenses choke the very entrepreneurial ventures we count on to drive the innovation-based Massachusetts economy.

Eliminating inefficient and outdated regulations means that existing companies will expand, abandoned buildings will take on new life, and entrepreneurs will feel the confidence they need to start businesses. We commend the Patrick administration for its business-like approach to the regulatory challenge.

The administration says it has already reviewed more than 200 old regulations across nearly 60 state agencies. Of those already reviewed, 41 will be rescinded and 107 will be improved, including 25 changes to adopt a national model or standard. These recommended changes cover a wide range of topics and include streamlining licensing requirements, simplifying standards for business practices, and eliminating duplicative reporting requirements.

The Executive Office of Housing & Economic Development has also appointed April Anderson Lamoureux, Assistant Secretary for Economic Development, to act as a regulatory “ombudsman” between the administration and business leaders on the topic of regulation. 

Meanwhile, AIM director and Executive Committee Member Michael Hogan, President of AD Makepeace Company, is working with the administration to convene a group of employers to advise state officials on regulatory issues.

Do you have a suggestion for an inefficient regulation that should be included in the regulatory review? Please provide your ideas in the comment section below, or contact Brad MacDougall, Vice President of Government Affairs (bmacdougall@aimnet.org).

Topics: Regulation, Issues, Deval Patrick

Are You On OSHA's 'List' for 2012?

Posted by Tom Crupi on Feb 14, 2012 8:42:00 AM

Federal safety regulators are making a list and checking it twice.

SafetyBut this is no holiday list and you don’t want your company to be on it.

The U.S. Occupational Safety and Health Administration (OSHA) each year compiles a list of employers with elevated incident rates that the agency intends to inspect under its Site Specific Targeting Program (SST). OSHA identifies potential unsafe work locations using two oddly named measures - the Days Away Restricted Transfer Rate (DART) and “Days Away from Work Injury and Illness Rate” (DAFWII).

These lists have real consequences for Massachusetts employers now that OSHA is stepping up enforcement activity and moving away from cooperative compliance programs. The number of OSHA inspections has increased substantially during the past several years and assessed penalties are two to three times what they would have been three years ago.  It is not uncommon for a small employer to be assessed a total penalty for $15,000-$20,000 for a half-dozen relatively minor violations.

How can you determine your risk of inspection?

If your DART or DAFWII rates exceed the following, and you were requested by OSHA to provide your 300A log information, you can expect an OSHA visit in 2012.
                                                                                              DART          DAFWII
Manufacturing                                                                           7.0              5.0
Non-Manufacturing, Except Nursing & Personal Care        15.0            14.0
Nursing & Personal Care                                                          16.0            13.0

DART Rate is computed by totaling all injuries and illnesses that result in lost time, restricted duty or job transfers and multiplying the number by 200,000 and dividing by the total number of hours worked.  The DAFWII is calculated the same way using only cases that resulted in lost work time. 

OSHA also plans to target specific hazards under National and Local Emphasis Programs.  These inspections will focus on chemical exposures, lead, combustible dusts, hexavalent chrome, silica, amputations and other hazards.

Many employers still do not understand how OSHA operates, what the OSHA standards mean, or what their rights are when OSHA shows up at their door.  Employers need to know the OSHA process, focus on correcting deficiencies, and reduce incident rates to avoid an inspection and costly penalties.
 
If you need some assistance to determine your inspection risk, please feel free to contact me at tcrupi@aimmutual.com. Better yet, look into the upcoming AIM OSHA/Safety Certificate series that I will be teaching in May. It’s a great way to begin improving your safety program and compliance activities.

Tom Crupi is Vice President of Loss Control at A.I.M. Mutual Insurance Company in Burlington. 

Topics: OSHA, Regulation, Safety

Supplemental Budget Addresses Regulation, Workforce Training

Posted by John Regan on Aug 31, 2011 4:03:00 PM

The Patrick administration filed a supplemental budget this week that contains two key provisions for employers – one that will require regulatory cost-benefit studies to be placed online and a second that will free up millions of dollars in workforce training funds current caught in an accounting transition.

Workforce TrainingThe $460 million spending bill, funded by surplus funds from the fiscal year that ended June 30, would send $300 million to the state’s rainy day fund, bringing that account’s balance to more than $1 billion for the first time since the recession. The remaining $160 million would be distributed among social safety net programs, workforce development programs and communities impacted by a December 2008 ice storm and June 2011 tornadoes

The measure would allow the commonwealth to move money earmarked earlier this year for the Workforce Training Fund Program (WTFP) into a new trust fund created when Governor Deval Patrick signed the Fiscal Year 2012 budget in August. Officials cannot currently apply money that was in the fund prior to the creation of the trust, meaning that companies receiving grants in July to train employees must wait to receive their money.

The Massachusetts Executive Office of Labor and Workforce Development says there is enough money in the trust to fund the backlog of applications to the WTFP Express program, which provides small grants.

“AIM strongly supports moving the Workforce Training Fund Program to a trust as a means of insulating the program from the uncertainties of the annual budget process. Moving money from the former structure to the new trust is really just an accounting issue,” said Richard C. Lord, President of AIM and Chair of the Workforce Training Fund Advisory Committee.

Lord said employers should know that applications for the WTFP will soon be accepted and approved on a monthly, rather than quarterly, basis.  State officials also say that a new WTFP application will be available Friday on the Labor and Workforce Development Web site.

The proposal to require state regulators to post the full text of cost-benefit studies of proposed new rules comes as welcome news to AIM. The association believes that online disclosure will lead to meaningful debates about the costs and potential consequences of regulations that may harm the Massachusetts economy.

The Massachusetts Legislature passed the cost-benefit study requirement in 2010, but the current law provides that only a summary of the analysis be posted online.  The full text is available at the Secretary of the Commonwealth’s office.

The cost-benefit reviews must include the following information about any new rule:

  • an estimate of the number of small businesses subject to the proposed regulation;
  • projected reporting, recordkeeping and other administrative costs required for compliance with the proposed regulation;
  • the appropriateness of performance standards versus design standards;
  • an identification of regulations of the promulgating agency, or of another agency or department of the commonwealth, which may duplicate or conflict with the proposed regulation; and
  • an analysis of whether the proposed regulation is likely to deter or encourage the formation of new businesses in the commonwealth.

"Employers appreciate the support of the Patrick Administration on these two important issues and look forward to working with the Legislature to ensure that both are addressed expeditiously," Lord said.

 

 

 

Topics: Regulation, Massachusetts state budget, Associated Industries of Massachusetts

Massachusetts Environmental Chief Seeks Business Input on Reform

Posted by Robert Rio on May 11, 2011 1:11:00 PM

The Massachusetts Department of Environmental Protection (MassDEP) is asking employers for ideas to help the agency restructure in the face of budget reductions.

EnvironmentalNewly appointed MassDEP Commissioner Kenneth Kimmel has initiated a broad review of environmental regulations and practices with an eye toward increasing the agency’s efficiency.  MassDEP is exploring a number of alternatives, including stepped-up use of information technology, greater reliance on self-certification and audit programs, and shifting certain tasks to third parties, as the state has done with the successful Chapter 21E program.

 “It will not be easy to identify quick-fix solutions to improving our operations.  However, our current budget realities require us to think and act differently,” Kimmel said in a statement.

“The current staffing levels at the agency are inadequate to guarantee timely and predictable permitting outcomes in the event permit applications begin to increase as the economy recovers … In order to avoid potential permitting backlogs and reduced compliance moving forward, and to ensure that MassDEP is well positioned to continue serving as a national leader in setting and enforcing environmental standards, we need to look seriously at all options.”

Associated Industries of Massachusetts commends the reform initiative and will serve on an advisory committee formed by Commissioner Kimmel. The business community often finds itself at odds with MassDEP decisions, but nonetheless understands that predictable and timely regulatory decisions are essential to Massachusetts companies as they seek to grow, expand and create jobs.

MassDEP has struggled for the past decade to meet increased responsibilities from lawmakers as its budget and employee count have dropped. The agency’s budget has declined from $62 million in 2002 to $46 million today, while staff has gone from 1,200 full-time equivalent positions to 840 during the same period.

Kimmel says he will consider all of MassDEP’s programs as potential candidates for regulatory or permitting reforms.  He will not consider changes that require increases in staff and will prioritize those that allow the agency to accomplish its environmental responsibilities with fewer people.

The commissioner is expected to begin reviewing recommendations for reform by the summer.

If you have suggestions, ideas or comments about potential changes to the environmental regulation system in Massachusetts, please contact me at rrio@aimnet.org or 617.262.1180.
 

Topics: Regulation, Associated Industries of Massachusetts, Environment

Study: Excessive Regulation Costs Thousands of Massachusetts Jobs

Posted by Christopher Geehern on Mar 3, 2011 2:10:00 PM

Excessive business regulation deprives Massachusetts of more than 26,000 jobs and 1,655 business starts each year, according to a study released yesterday by the U.S. Chamber of Commerce.

State RegulationMassachusetts is among 15 states to earn a “poor” ranking on labor and employment-law issues in the report, entitled The Impact of State Employment Policies on Job Growth: A 50-State Review. The study contends that the mandatory treble damages law in Massachusetts, restrictions on access to the criminal records of job applicants, and other issues inhibit the ability of the commonwealth to compete nationally and create economic growth.

The Chamber report concludes that states such as Massachusetts could boost job growth and encourage the formation of new businesses by creating a less burdensome regulatory climate.  The organization says it does not advocate the elimination of important employment laws, but rather elimination of the duplicative rules that states often pile on top of accepted national standards.

Release of the study came as Massachusetts announced that its unemployment rate remained unchanged in January at 8.3 percent, half a point lower than the national average.

The U.S. Chamber study features an “Employment Regulation Index” measuring the extent of labor and employment regulation in each state, based upon 34 characteristics related to employment (including treatment of covenants not to compete, existence of state minimum wages in excess of federal, and the existence of right-to-work laws). States were then placed into one of three tiers  -  “Good,” “Fair,” and “Poor” - based on their level of labor and employment regulation.

The report attributes Massachusetts’ poor ranking to several factors:

  • Extensive restrictions on pre-hire background checks;
  • Wide-ranging state employment discrimination laws beyond federal requirements;
  • Extensive wage-hour regulation beyond federal requirements;
  • Presumption against independent-contractor status and aggressive enforcement;
  • Three-hour reporting pay requirement;
  • Prevailing and living wage laws; and
  • Notice payment law that can require severance for change in control.

Read the Chamber study here.

Topics: Regulation, Associated Industries of Massachusetts, AIM, Employment Law

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