Small businesses need their own separate regulatory system. It should be simple. It should be accessible from one place. And it should be focused on meeting regulatory goals rather than larded with details and prescriptions.

That argument was made Wednesday by Philip K. Howard, founder of the anti-bureaucracy nonprofit Common Good, at a hearing before the U.S. House of Representatives Small Business Committee. Howard called the current regulatory framework a "powerful disincentive to entrepreneurship" and blamed compliance costs--in both time and money--for part of the decline in business starts.

Overly complex regulations are unfair, Howard said, because compliance costs per employee are far higher for small businesses than for large ones. "Small businesses that try hard to comply are often at a competitive disadvantage to businesses that realize they can often get away with ignoring regulation altogether," he added.

In Howard's view, small businesses forced to deal with regulatory minutiae--rather than simply being required to adhere to broader principals and goals that achieve the same purpose, and receiving oversight--are almost set up to lose. As a result, a business with exceptional worker safety may be penalized for paperwork violations, he said. Howard cited a small business that was sued under the Americans with Disabilities Act for installing a soap dispenser an eighth of an inch above the designated height for use by someone in a wheelchair.

Regulations are not just too dense; they are also profuse and widely dispersed. "The government does not even try to coordinate among the different agencies regulating small businesses," said Howard. Opening a restaurant in New York City requires permits from as many as 11 different agencies, he said, citing former mayor Michael Bloomberg.

Howard proposed three congressional initiatives to begin streamlining compliance for small companies:

  1. Design pilot projects: Congress should appoint an independent commission to test ways to make compliance easier for small business. For example, it might try consolidating into one department--ideally at the state level--all federal, state, and local regulations related to employees. (Federal funding would be conditioned on state efforts.) Other pilots might try to weed out redundant or obsolete laws, including licensing requirements that throw up unreasonable barriers to entry for new companies.
  2. Establish one-stop shops: Howard recommended that Congress create a coordinating department--perhaps under the Small Business Administration--to serve as sole point of contact for small businesses needing any type of federal permit.
  3. Privatize enforcement: Government lacks the capacity to monitor regulatory compliance by more than 29 million small businesses. And those 29 million small businesses typically lack the capacity to understand complex regulations. Howard recommends that government offer a "safe harbor" to small businesses that receive approvals from "certified regulatory experts," who would monitor companies' compliance much as financial auditors bless their books.

"It would initiate such energy in our society," said Howard, "if people could be confident that they understand the law and can follow their hearts to do what has made the American economy great."