Over-Regulation Leads to Under-Innovation

According to the 2013 Global Innovation Index, released by Cornell University, INSEAD and the World Intellectual Property Organization, the United States ranks as the fifth most innovative country, behind Switzerland, Sweden, the United Kingdom and The Netherlands.

While this is an improvement from 2012, when the United States was 10th, there is one root cause for America’s failure to be crowned the top country in innovation: this nation’s lack of support for entrepreneurs.

Where do new ideas come from? From startups and visionaries that just need some support and capital to make their ideas a reality. This nation’s entrepreneurs drive innovation, job creation and our economy.

Why can Sweden excel in innovation when the United States cannot? The answer is that Sweden understands the burden that regulations have on business and innovation.

While regulations cost American businesses $1.8 trillion a year, Sweden recognizes that when you cut red tape and reduce regulations, innovation can thrive and entrepreneurs can flourish.

In 2010, the Swedish Agency for Growth Policy Analysis was commissioned by the government to conduct studies of the effects of rules on enterprise.

The commission began compiling the latest research findings on regulatory burden, regulatory simplification and regulatory impact on business; examining what effects direct and indirect costs have on businesses and the economy; conducting an analysis of other regulatory effects, excluding financial costs, on companies and how they affect the companies’ behavior in regard to investments and efficiency improvement; and analyzing what effect the structure of rules has on companies’ productivity.

Their findings should not surprise anyone conducting business in America. In essence, they found that regulations prevent companies from growing and exploiting new markets; generate excessively high compliance costs for both companies and for the government; and contribute to companies becoming less capable of adapting to technological change or consumers’ needs.

Sweden understands a basic truth about business: over-regulating crushes profitability, innovation, job creation, productivity, value and economic growth.

Ryan Young, a fellow at the Competitive Enterprise Institute, was a guest recently on my Made in America radio show and noted that 36 new regulations are passed in America every day, which continue to put a heavy burden on all businesses, but especially entrepreneurs.

Most troubling is what he calls “regulation without representation,” which describes the power that this administration has bestowed upon regulatory agencies allowing them to pass 3,000 regulations without Congressional approval.

His most salient point was that most of the world’s wealth hasn’t been created yet, which means those countries that support the greatest innovation will also create the most wealth.

America cannot sit still while we allow other nations to excel in the global marketplace.

Part of that is allowing other countries to buy U.S.-made goods without excessive tariffs and regulations so they can experience American innovation firsthand.

This again is where Sweden has figured out the relationship between entrepreneurial support and exporting. Sweden has access to the world’s largest free-trade market — the European Union, with 27 other member countries and 500 million consumers.

While other countries are doing a full-court press on signing off on the proposed European Trade agreement that could give U.S. manufacturers access to these markets, America is dithering its time, allowing trade unions to derail the process.

Is Sweden smarter than the United States? I don’t think so. But they are smart enough to recognize that over-regulation kills an economy and job creation. Yet, our government has ignored the perils of over-regulation and has ceded authority to regularity agencies without Congressional oversight. They are amassing power and creating job security for thousands of bureaucrats who create no value for this nation.

If we can’t support our nation’s entrepreneurs by reducing regulatory pressures, over-taxation and letting companies compete on a level playing field on the global market, they’ll stop innovating and even go elsewhere.

America must capture the crown as the most innovative country on earth. Take off the regulatory shackles and let entrepreneurs do what they do best: innovate.

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