But when we talk about red tape in the context of government regulation, the issue becomes more contentious and complex. Critics argue that excessive red tape stifles innovation, slows down economic growth, and ultimately hurts businesses and consumers. Proponents, on the other hand, argue that regulations are necessary to protect public health, safety, and the environment.
One thing is clear: Red tape is a real and tangible issue that affects businesses of all sizes. Finding the right balance between regulation and innovation is a challenging task that policymakers, business leaders, and society as a whole must grapple with. In the end, the goal should be to create a regulatory environment that fosters growth, protects consumers, and ensures a level playing field for businesses. “But it’s important to have the right balance. Too much regulation can stifle innovation and make it difficult for businesses to operate efficiently. In the healthcare industry, for example, overly burdensome regulations can lead to increased costs, which ultimately get passed on to patients in the form of higher healthcare expenses.
Furthermore, the sheer volume of regulations can be overwhelming for businesses, particularly small businesses that may not have the resources to navigate complex regulatory requirements. This can create a barrier to entry for new businesses and hinder economic growth.
Finding the right balance between regulation and innovation is a challenge that policymakers must grapple with. Regulations are necessary to protect consumers, promote public health, and ensure fair competition. But they must be carefully crafted to achieve these goals without unduly burdening businesses.
As President Obama’s tenure comes to an end, it’s clear that his administration has been one of the most prolific in terms of regulatory output. Whether these regulations have been necessary and effective remains a topic of debate. But one thing is certain: the issue of red tape and regulation will continue to be a hot-button issue for businesses and policymakers alike in the years to come.” ” “It’s just when it goes outside the norms that seem constructive—or when it’s contradictory to other rules out there—that it creates a lot of tail chasing and it gets very confusing for us to do the right thing and comply.”
Most of the time, regulation begins with a noble goal. Laws are typically passed with the intention of addressing or preventing some wrong, and rules are developed to implement those laws. In that way, as Herbert Kaufman noted in his seminal 1977 book, Red Tape: Its Origins, Uses & Abuses, “one person’s red tape may be another’s treasured procedural safeguard.” It’s when you add up all those rules that you get into trouble at times.
Mandel of the Progressive Policy Institute has introduced a metaphor—one that was often repeated to me by others—to describe the effects of regulatory accumulation. It’s like throwing pebbles in a stream, the economist says. Toss one in, or even two or three, and there’s no obvious effect. But once you throw in a hundred you may start to block the flow of water. “It’s really about taking degrees of freedom away from businesses,” he says.
This is compounded by the fact that the rulemaking machinery—just like the law-making system—is geared toward pushing out new regulations, not removing them. And once new rules are on the books, they usually just stay there. Mandel points out that there is no central place in the federal government where you can report problems with regulations. And because there’s no database of complaints, there’s no way to analyze the patterns and identify overlaps that need addressing.
“I kind of think of the regulatory issue as people basically saying in their own varying ways, ‘Who’s in charge here?’ Is there anybody who’s really steering the ship? If you point out to somebody that there’s a problem, is there anybody that can respond?”
Business leaders complain about the specter of new, onerous regulations. But when pressed, executives often have a hard time coming up with existing rules they would like to have repealed. In part, that’s because big companies are quick to adjust, and regulations that are in place become a barrier to entry for competitors.
Indeed, government intervention can be a welcome protection at times. Sprint CEO Marcelo Claure praises the Obama administration for helping his company negotiate reasonable roaming rates with Verizon and AT&T in areas where Sprint doesn’t have cell towers, and says that consumers have been the winners. “In this case we welcome regulation that doesn’t allow Verizon and AT&T to use their market power to basically drive us out of business,” Claure told Fortune in September.
Large increases in federal regulation often come in response to upheaval. The Securities and Exchange Commission, as well as much of the modern framework for modern financial regulation, was created in response to the Crash of 1929. The social and environmental awakening of the 1960s led to a desire to protect our planet, consumers, and workers, and to a great expansion of the regulatory state in the 1970s. (And that expansion, in turn, begat the Washington lobbying mega-complex.)
The attacks of Sept. 11, 2001, then prompted the creation of the Department of Homeland Security, which, with a fiscal 2016 budget of $27 billion, now accounts for 43% of the government’s spending on regulations.
Likewise, the passage of Dodd-Frank—which created a powerful new agency called the Consumer Federal Protection Bureau—was a direct response to the Great Recession. At 849 pages, it was a mammoth and ambitious statute, designed to rein in big banks and compel them to maintain higher levels of capital. Core to the legislation was the Volcker Rule, which sought to rebuild the wall between traditional and investment banks that had been erected in 1933 with the passage of the Glass-Steagall Act and torn down with its repeal in 1999.
The financial industry has bristled at the regulatory burden of Dodd-Frank since its passage. There’s no doubt it has added significant costs to the operations of big banks. In his annual letter to shareholders earlier this year, for instance, JPMorgan Chase CEO Jamie Dimon reported that since 2011 the number of employees dedicated to regulatory “controls” at the bank had risen from 24,000 to 43,000 and the yearly cost associated with that compliance effort had jumped from $6 billion to $9 billion. Of course, any compliance expenses pale in comparison to the cost of the financial crisis, which economists at the Dallas Fed calculated conservatively a few years ago to have been anywhere from $6 trillion to $14 trillion.
But whether all the added regulatory burden of Dodd-Frank really keeps us safer from the next financial meltdown is open to debate.
The law isn’t just an exemplar of regulatory kudzu, however. It’s also a case study in how Big Business—and big lobbying—plays a role in creating its own red tape. Consider the Volcker Rule, which was instituted to prevent banks from using customers’ money for proprietary trading. The original draft of the rule was very short, points out Dennis Kelleher, the CEO of the nonprofit advocacy group Better Markets. The final regulation ended up being 950 pages.
“Now, why is that?” asks Kelleher, a former Skadden Arps attorney who was chief counsel for Sen. Byron Dorgan (D-N.D.) during the financial crisis. “Primarily because of the financial industry. The industry lobbied over and over and over again for this exception, that exception, this clarification, this interpretation, this permitted activity. Almost all of the length in these rules are demanded by the industry—and then they complain about the length and complexity of the rule.”
It’s a phenomenon that Lee Drutman has seen again and again. A senior fellow at the nonpartisan think tank New America and the author of The Business of America Is Lobbying, Drutman says that complicated regulations provide cover for the powers that be. “Once you get a benefit, you pay a lobbyist to keep that benefit,” says Drutman.
But fast forward to today, and the regulatory environment around telecommunications has changed dramatically. Mandel argues that if the same negotiations were happening now, regulators might step in and impose restrictions or requirements that could hinder the innovation and competition that made the smartphone revolution possible. “The concern is that regulation could unintentionally squelch those kinds of innovations,” he says.
So what’s the solution to the red tape problem? It’s clear that there is no easy fix, and no one-size-fits-all approach. But as long as there are people like Philip K. Howard, who are willing to keep fighting against the tide of regulations, there is hope that progress can be made. Whether it’s through legislative reform, streamlined permit processes, or simply a change in mindset, there are ways to cut through the red tape and make government work better for everyone.
As Howard puts it, “We can make choices. We can decide what we want our laws to do and how we want them to work. We don’t have to be prisoners of our own system.”
“Katakanlah bahwa Anda harus mengadakan dengar pendapat? Dan berapa lama waktu yang dibutuhkan, dan berapa banyak keberatan yang akan ada?” tanya Mandel, menjelajahi hipotesis. “Berapa banyak pertumbuhan yang akan hilang karena itu?”
Perusahaan di ujung terdepan revolusi ini kadang-kadang kesulitan beradaptasi dengan negara regulasi yang mapan. Raksasa layanan kendaraan Uber berlomba-lomba dan membangun merek global sambil kadang-kadang mengabaikan dan melawan regulator di banyak pasar, dengan CEO yang penuh semangat Travis Kalanick memimpin pertarungan. Awal tahun ini startup tersebut menandakan bahwa mereka siap untuk mengambil pendekatan yang berbeda, membentuk dewan kebijakan yang mencakup Ray LaHood, mantan kepala Departemen Transportasi, untuk bekerja dengan pihak berwenang dalam mengatasi tantangan regulasinya.
Fakta bahwa Uber telah mengamankan valuasi lebih dari $60 miliar dari para investor modal ventura mungkin membuktikan bahwa pendekatan yang diimprovisasi dapat berhasil dalam keadaan yang tepat. Tetapi itu terlalu sembrono untuk membangun strategi di sekitarnya. Yang benar-benar dibutuhkan perusahaan adalah jalan keluar dari kekacauan ini.
Matt Harris adalah direktur manajemen di Bain Capital Ventures yang berinvestasi terutama di fintech, sektor startup yang sedang berkembang yang menggunakan teknologi untuk mengganggu industri keuangan. “Jika saya bisa mengubah satu hal, itu hanya memberi saya satu regulator,” kata Harris. Dia menunjukkan bahwa perusahaan pembayaran saat ini harus berurusan dengan 50 negara bagian, bagian berbeda dari Departemen Keuangan, FDIC, Fed, dan Departemen Kehakiman jika berencana untuk melakukan hal internasional. Secara keseluruhan, kata Harris, mungkin ada hingga 80 regulator yang berbeda yang mengawasi bisnis Anda.
Dia mengakui bahwa aktivitas mengirim uang perlu diperiksa dengan hati-hati. “Tetapi gagasan bahwa Anda harus memiliki 75 konstituen, semua dari mereka yang pada hari tertentu dapat menutup Anda – itu sangat tidak efisien,” katanya.
Memiliki satu regulator dengan kekuasaan yang begitu luas mungkin tidak sepenuhnya realistis dalam ekonomi yang beragam dan kompleks seperti milik kita, bagaimanapun. Yang benar-benar kita butuhkan adalah kerangka kerja baru untuk berpikir tentang regulasi itu sendiri, bukan regulatornya.
Mandel mengatakan bahwa sistem pemeriksaan retrospektif saat ini tidak memiliki dampak. Bersama dengan Diana Carew, rekan kerjanya di PPI, dia telah mengusulkan pembentukan Komisi Peningkatan Regulasi yang akan diotorisasi oleh Kongres untuk jangka waktu tertentu untuk mengidentifikasi regulasi yang harus dihapus atau diubah untuk mendorong inovasi. Sebuah versi proposal telah diperkenalkan di Senat dan Dewan dalam dua tahun terakhir, namun belum mendapat dukungan.
Harris mengulang Philip K. Howard dengan menyarankan bahwa kita mungkin memerlukan pendekatan yang lebih radikal. Cara terbaik untuk merespons dunia yang semakin kompleks adalah dengan membuat aturan kita lebih sederhana, katanya, bukan lebih rinci. Regulasi sekarang ditulis dalam upaya untuk melegislatifkan setiap tindakan yang bisa diimaginasi oleh individu pada setiap subjek yang bisa diimaginasi – tugas yang tidak mungkin. “Saya pikir seluruh hal ini perlu dipikirkan ulang dan dikembalikan ke serangkaian prinsip dasar yang lebih detail tentang bagaimana segalanya bisa berfungsi,” kata Harris. “Hal-hal mungkin terlewatkan pada saat-saat tertentu, tetapi pendekatan yang kita miliki sekarang semakin kuno.”
Ironisnya, gagasan kertas berwarna merah mungkin sedang dalam jalur tabrakan dengan kekuatan disruptif. Industri teknologi telah menatap birokrasi, sama seperti banyak industri yang telah berubah sebelumnya.
Sebagai contoh, IBM setuju pada akhir September untuk membeli perusahaan konsultasi Promontory Financial Group, yang mengkhususkan diri dalam regulasi keuangan. Ide tersebut adalah untuk menggabungkan keahlian Promontory dengan kekuatan kecerdasan buatan IBM Watson dan mengembangkan sistem kepatuhan yang lebih cerdas.
David Kenny, yang menjalankan bisnis Watson IBM, melihat peluang investasi serupa dalam segala hal mulai dari kepatuhan FDA hingga aturan lalu lintas untuk kendaraan otonom. “Ada beban regulasi yang begitu besar bagi perusahaan saat ini,” kata Kenny. “Semua kertas merah yang ditujukan dengan baik dapat menghalangi kemajuan. Jadi jika kita dapat mengotomatisasi kertas merah, membuatnya jelas, dan membantu pembuat kebijakan dan orang-orang yang harus melaksanakannya lebih memahami satu sama lain, wow, itu benar-benar membebaskan banyak kapasitas.”
Pada akhirnya, manusia belum bisa menghilangkan kertas merah. Kita mungkin juga memberikan kesempatan kepada komputer untuk mencobanya.
Sebuah versi artikel ini muncul dalam edisi 1 November 2016 dari Fortune dengan judul “Red Tape.”
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