Politicians like to talk about “getting government out of the way.” What does that mean, exactly?
Taxes probably come to mind first among ways the government inhibits the private sector. It’s a huge disincentive for entrepreneurs and business owners to take risks and invest in their companies when they know the taxman will take a big bite out of their profits. The bigger the bite, the larger the disincentive.
But profits can’t be taxed unless they’re earned, and a business is hard-pressed to earn them if it can’t operate freely and nimbly. Industry has an increasingly difficult time doing so. This is the problem known as overregulation.
Various estimates suggest that compliance with rules and regulations nationwide costs businesses between 8% and 12% of U.S. economic output each year, or some $2 trillion to $3 trillion.
That problem ought to be front and center of this year’s presidential election given the starkly different approach taken by regulators during Donald Trump’s presidency compared to the Biden-Harris administration.
It should also be an area of focus for our state government.
The Mercatus Center at George Mason University recently published a review of state regulations. The strictest states were predictable: California, New York, New Jersey and Illinois – although No. 5 Texas comes as more of a surprise. California has a shocking 40% more regulations than even second-place New York, and more than the seven least-regulated states combined.
Georgia’s reputation is much more business-friendly. Still, our state ranked only in the middle of the regulatory pack with the 26th-most restrictions. How did we land in that spot? Mercatus found that Georgia’s regulatory code includes 111,899 restrictions – that is, uses of the words and phrases “shall,” “must,” “may not,” “required” and “prohibited” – and reaches a whopping 6.3 million words. It would take the average reader more than two months to comb through the entire regulatory code.
Those 111,899 restrictions place us right around the middle of our neighbors in the Southeast: Florida (11th most with 170,321), Tennessee (24th, 121,620) and Alabama (25th, 117,041) had more while North Carolina (27th, 109,244) and South Carolina (36th, 83,372) had fewer.
Facing these 111,899 restrictions is bad enough for Georgia businesses. But they also face nearly 1.1 million regulations at the federal level. To give you an idea of how damaging these are, Mercatus estimates “the growth in federal regulations between 1997 and 2015 is associated with the following effects on the Georgia economy: 261,162 additional people living in poverty, 3,594 lost jobs annually (and) 7.35% higher prices.”
Georgia’s state leaders can’t cut those federal regulations, but they can take inspiration from their peers around the country and improve what is within their control.
Patrick McLaughlin, one of the co-authors of the Mercatus report, noted in a recent article for Discourse Magazine that the Canadian province of British Columbia went “from economic laggard to leader in just a few years” after reducing its number of regulations by some 40% within three years.
Several states noticed British Columbia’s success and decided in the 2010s to copy it. McLaughlin branded Idaho, Kentucky, Missouri, Nebraska, Ohio and Oklahoma as “reform states” because they have cut their number of regulations by at least 5% in recent years. Other states, including Georgia, fell into the category of “status quo states.”
Here’s what he found about their respective economic performances between 2020 and 2023:
“Reform states experienced average annual growth of 2.09%, whereas status quo states grew at 1.86% on average. For growth rates, a difference of 0.22 percentage points is significant. If that difference were maintained for a 20-year period, the faster-growing group would grow 5.25% more than the slower group – essentially gaining nearly three entire years of economic growth.”
Regulatory reform may not account for all of that difference, but the results track with previous research. If Georgia is to keep moving in the right direction, trimming its restrictions on businesses is an obvious – and inexpensive – way to do it.