Wednesday, September 10th, 2014

Highlights from Today’s NAM Report on the Cost of Federal Regulation

The National Association of Manufacturers (NAM) issued a report this morning detailing the enormous, burdensome costs that manufacturers bear in order to stay in compliance with federal regulations. Based on a survey of NAM members, the report, titled “The Cost of Federal Regulation to the U.S. Economy, Manufacturing and Small Business,” indicated that the average American manufacturer pays $19,564 per employee per year in compliance costs, almost double the $9,991USCapitol per employee per year that non-manufacturers pay. Overall, America’s manufacturers pay $2.028 trillion every year in order to stay compliant with federal regulations.

“As the nation’s third-largest manufacturing sector employing 900,000 men and women, the plastics industry is no stranger to regulations,” said SPI President & CEO William R. Carteaux in a response to this morning’s report. “While many of these rules and regulations are proposed and implemented with good intentions, the devil has always been in the details and as the NAM report makes clear, America’s regulatory framework is in need of a serious reboot,” he said, adding that “comprehensive reform is necessary to allow the nation’s manufacturers to grow their businesses, hire more workers and keep America competitive abroad.”

In addition to detailing the staggering costs that the manufacturing industry pays every year, the NAM report also contained several other important insights:

  • Federal regulation was by far the most frequently identified business challenge: Eighty-eight percent of survey respondents indicated that “federal government regulation was a challenge that had recently affected their firm or that they expected their business to face in the future.” Additional information provided by respondents went further, detailing the regulatory cost information for specific expenditures. “Estimating the cost of outlays for manufacturing as a whole from the respondents’ data indicates that direct expenditures related to regulation in the past year were $138.6 billion,” the report said, noting that this figure is larger than the economies of 19 U.S. states, to put things into perspective.
  • If the cost of regulatory compliance fell, the resulting funds would be reallocated in interesting places: Survey respondents were asked how their company might reallocate funds if their regulatory compliance costs were reduced. Their open-ended answers fell into one or more of five general categories: investment, employee initiatives, sales, ROI or debt reduction and other. Within the investment category, which was the most popular with 63 percent of responses, survey participants identified four areas of investment spending that would be likely to increase if regulatory compliance costs decreased: “capital investment and expenditures, growth and acquisition, research and development and general unspecified investment.” Within the employee initiatives category, which was the second most popular response with 22 percent, respondents identified three areas of employment spending that would likely increase if regulatory costs decreased: “creating or preserving jobs, employee training and wages and/or benefits.”
  • Regulation compliance takes a toll on morale in addition to each manufacturer’s bottom line: A number of themes arose in the additional comments offered by survey respondents about federal government regulations, but one important one was the fact that respondents observed deterioration in morale, well-being and work environment as a consequence of regulation. Many reported “an adversarial perspective by regulators toward businesses, where a firm ‘is approached as an evil entity’ populated by ‘bad guys.’” According to the report, in most cases these comments reflected the perspective that regulators fail to understand the circumstances of the businesses they are regulating, which in turn creates greater uncertainties.
  • The costs reported in the survey do not capture the total cost of regulations on a sector, or on the economy as a whole: While $2.028 trillion is a hefty price tag that the nation’s manufacturers pay for federal compliance, the total costs could be considerably higher. While the survey specifically asked for information regarding federal regulation and how it related to “the distribution of employees’ time; the cost of outside advisers; purchasing and maintaining tangible items; emissions credits or offsets; and costs resulting from federal government compliance-related activities,” respondents discussed other ancillary costs in their open-ended responses. According to the report, “inefficient planning as a consequence of uncertainty, including federal regulation in the production location calculus, R&D and capital investment consequences and reductions in employment and in competitiveness” were among the additional costly consequences that respondents associated with federal regulation.

A full copy of the NAM report can be found here.

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