American business must comply with a lot of rules. One of the chief rationales for many regulations is safety, and, as Congress expands regulators' mandates, regulators concentrate on writing highly detailed and specific rules to cover perceived gaps in the law. For the sake of protecting the health and safety of workers and consumers, the federal government accepts the significant drag regulatory compliance puts on the U.S. economy and the burden it places on all businesses. Psychology, economics and organizational science, however, suggest that too many regulations may make society less safe, says the Mercatus Center.
- Increased regulation often leads to reduced compliance, whereby businesses feel that they cannot possibly keep up with the number of rules and therefore give up all efforts entirely.
- Heavy regulation also stifles safety innovation -- businesses spend so much energy and time attempting to abide by commanded rules that they do not create their own, firm-specific regulations that may be more needed.
- Regulation also causes uncertainty as corporations are more hesitant to invest due to a lack of knowledge regarding the future regulatory landscape.
This first point of reduced compliance makes clear sense: businesses become so clouded with the number of rules by which they must comply that they often fail to adequately obey the most important ones. Minor rules that attempt to address small problems consume a disproportionate amount of time and often cause compliance failure in other areas. Furthermore, a plethora of minor regulations of minimal impact often cast a negative light on all regulations, even those of particular importance.
That regulation will reduce firm-specific safety standards is also a significant problem. Nationwide or even industry-wide regulations usually fail to take into account corporation idiosyncrasies. Thus, even if all regulations are obeyed, there remains significant room for improvement in safety. However, an exhaustive regulatory atmosphere often dampens efforts to create a more comprehensive system of rules.
Businesses hesitate to invest and make drastic changes in their production or line of work when they are uncertain about extraneous factors such as regulation. Managers often cite regulations as one of the greatest factors in their decisions not to hire, and this hesitation causes economic paralysis.
Source: "Do More Regulations Equal Less Safety?" Mercatus Center, December 2011.