Who Regulates the Regulators?

David Brodwin is a cofounder and board member of the American Sustainable Business Council.  I also serve on this board and am the co-chair of the organization.


U.S. News & World Report
December 8, 2014

By David Brodwin

One of the biggest challenges in building a sustainable economy is protecting the regulators who exist to protect the rest of us. We create structures to keep the economy healthy, like the Securities and Exchange Commission, the Food and Drug Administration and the Federal Communications Commission. But such entities are stealthily co-opted by the very interests they are supposed to regulate. Keeping regulators on track requires vigilance to stave off constant efforts to dilute, evade, preempt and compromise their function.

The latest casualty of the regulatory wrecking crew is the small business sector. Small business is tremendously important to the health of the U.S. economy: More than 95 percent of American businesses are considered small businesses (with fewer than 100 employees). Every big, world-class company starts life as a small business, and small business creates the majority of net new jobs. Moreover, most small business jobs are local jobs that don’t easily get exported; in that sense, small businesses are the backbone of middle-class earning power.

Because small business is so important, several federal agencies (the U.S. Environmental Protection Agency, the Occupational Safety and Health Administration and the Consumer Financial Protection Bureau) are legally required to consider the needs of small business when developing new regulations. This is done by convening a special review process – the Small Business Advocacy Review process – to take public testimony from small businesses about the impact of potential new regulations. These reviews have been led since 1976 by the Office of Advocacy of the Small Business Administration.

It makes sense to take small business into account when crafting regulations. In all the polling American Sustainable Business Council has done, small business owners have shown themselves to be a pragmatic lot. Regardless of political party affiliation, most say that regulations are sometimes needed. Majorities of small business owners support reasonable regulations that are well constructed, cost-effective and fairly enforced. This pattern holds across a wide range of policy issues: clean water, climate change, minimum wage, immigration and more.

Unfortunately, the Office of Advocacy has been turned into a Trojan horse, according to a recent study by the Center for Effective Government. Inside the Trojan horse are lobbyists and trade association representatives who don’t remotely represent small business. Nor do they seek a pragmatic balance between regulation and profit-making. Instead, they represent major polluters and others who seek short-term gains without regard to communities, employees and the environment.

The tactics of these lobbyists and trade associations are as creative as they are destructive. These tactics have become clear through a review of 20 review panels convened over a 14-year period. Among the tactics reported by the Center for Effective Government are:

  • Presenting people as “representatives” of small business who have never run a small business in a position to be affected by the rule in question.
  • Having lobbyists, trade-association staff, lawyers and consultants ghost-write testimony for small business owners who appear before the panels or submit comments.
  • Concealing the true identity and affiliation of persons participating in the public comment and testimony process so that conflicts of interest cannot be recognized until after regulations have been finalized.
  • Using their access to the review process to push through changes that have nothing to do with a rule’s potential impact on small business, but instead favor a particular industry.
  • Collaborating with the Office of Advocacy to shape the content of comments to be submitted to the agency. This is equivalent to a trial judge secretly collaborating with one side or the other to shape the testimony to be given, and then ruling on the evidence thus presented.

All of this maneuvering undermines the effectiveness of the rulemaking progress and the agencies involved. First, it gets in the way of the true needs of small business being met. Second, it undermines regulations that don’t actually harm small business and do increase public safety and the overall health of the economy. Some of these regulations involve toxic chemicals; others involve toxic mortgages and related financial products. Finally, this maneuvering wastes resources in both government and the private sector: These hearings and periods of public comment take months and cost millions of dollars.

The Small Business Administration’s Office of Advocacy needs to clean up its act. It needs to open the doors on the Trojan horse so the public can see who is inside. It needs to make sure that those who submit comments and show up at hearings really do represent small businesses that have a stake in the issue at hand. In needs to keep spokespeople with no small business affiliation away from the hearing process. It needs to disclose fully the names and organizational affiliations of those who do show up so the public can spot conflicts of interest. And it needs to open up the panels to welcome the full breadth and depth of the small business base in America and make it much easier for business owners to track and comment on pending issues.

Small business owners are crucial to the American economy. We need to protect their access to rulemakers, and we must stop others from exploiting the trust and respect that we hold for Main Street America.



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