Sunday, September 11, 2011

Federal Regulation vs American Businesses

[from billlifka] There’s much debate over federal regulation becoming ever more intrusive, more unreasonable and more damaging to the economy. I agree with those who believe the federal bureaucrats have far exceeded their missions and have violated the constitution by usurping powers of Congress. Liberals (progressives) have been attacking the private sector for over a century. Their goal is a socialistic America. Consider my personal experience twenty six years ago. It’s only one of many similar happenings.

At the time, I was engaged in restoring a troubled company. Despite its negative cash flow, this company had a number of commendable characteristics. Having a few less than 500 employees, it was considered to be a “small business”. Small businesses are the real source of employment growth and for other reasons, also, the federal government was trying, in 1985, to encourage small businesses. Another federal goal was to reduce an imbalance of trade caused by much greater imports than exports. This company exported 35% of its products; well above average.

Both federal and state governments encouraged employment of minorities (translate this to be African-Americans) and especially those in pockets of poverty, like inner cities. The company was adjacent to Bridgeport, CT, with its large population of poor blacks. The company employed many of them in electronic assembly. This was not at minimum wage but competitive and union-negotiated hourly rates. Another federal concern, back then, was “Japan Inc. eating our lunch”, especially in the electronic industries. The company was leading all Japanese producers of its product, combined, in market share. (It shared the lead with the subsidiary of a huge American corporation.) The bottom line is that this small company deserved federal support, not its grief.

The company had two export licenses: one for trade and one for samples. The first was for items sold and the other for demonstration product which, eventually, would be returned or destroyed. In the company’s regular review of paperwork, it discovered that a small shipment (about three thousand dollars) had been filed under the sample license, mistakenly. The company reported this to the local Commerce Department office, within a few weeks of the mistake. Nothing was heard from Commerce for over six months. This wasn’t surprising. It was like not feeding a parking meter and showing up at city hall a few weeks later, voluntarily, to pay the dollar owed.

Without warning or discussion, Commerce cancelled the company’s export licenses, fined it $5 million (Like killing flies with a howitzer.) and spread the news to the company’s customers and distributors in federal publications. The company couldn’t raise $5 million or survive losing one third of its business. It appealed the ruling. The accuser was a young, black, female lawyer at Commerce who would not back down a penny. As far as she was concerned, the company was a typically rotten corporation better dead than alive. Her supervisor was empathetic, but powerless for fear of his underling’s political position. Eventually, the company had its U.S. Senator exert his clout; the licenses were restored and the fine reduced to $50K, less than cost of legal fees to continue the fight. That’s one example of regulatory action that is killing American businesses. Cost of filing compliance reports is worse. Over-regulation is a major factor in unemployment.


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