Earlier this week, President Donald Trump met with leaders from some of America's leading companies, including Elon Musk (SpaceX and Telsa), Kevin Plank (Under Amour), Wendell Weeks (Corning) and Andrew Liveris (Dow Chemical). During the meeting, President Trump expressed a desire to cut taxes for corporations and slash regulations "by 75% or more", although as Bob Bryan of Business Insider points out, it's not exactly clear yet whether Trump is referring to cutting the cost or number of regulations on the books. Assuming both possibilities, the effect on business innovation might hard to predict.

Paperwork and time

On one hand, regulations generally come attached to paperwork and related filing processes. Janet Novack of Forbes reports that individuals and businesses spend 6.1 billion hours annually complying just with the tax code alone, the equivalent of 3 million people working full time all year. Furthermore, entrepreneur Max Galka asserts that the public forks over roughly $69 billion responding to various government requests for information, dedicating some 11.5 billion hours annually to complete the task. Were regulations cut, businesses could put some of that time back into creative processes, which could make innovation spike.

Regulatory costs

Complying with regulatory costs can make it too expensive to maintain a larger workforce, which is one reason why regulation hits small businesses especially hard. Ben Gitis and Sam Batkins of the American Action Forum claim that, for every 10 percent increase in regulatory costs in an increase, the number of small- and medium-sized businesses in that industry goes down 3 to 6 percent, while large businesses grow 2 to 3 percent because they're better equipped to absorb the costs and proceed to a state of competitive advantage. With fewer people on the company payroll, the type and number of new ideas can be more limited.

Accountability

One of the major purposes behind many of the current regulations in place is to create accountability for businesses as they operate. If the bulk of regulations disappear, much of that accountability also could fade, simply because businesses no longer will be obligated to maintain the paperwork that proves what those businesses are doing. That could spell trouble in terms of funding, because investors and shareholders generally want reliable records detailing operations and profit potential. And if investors and shareholders aren't convinced a company is operating ethically or financially in their best interests, the funding businesses could put toward innovation might be harder to come by.

Safety

The Occupational Safety & Health Administration asserts that the problems related to injuries and illnesses associated with unsafe conditions can have a negative effect on both morale and productivity. Workers might be less able to be innovative when they are discouraged or chronically worried about their immediate work environment, as they might be forced to focus more on their well-being than coming up with new concepts. In this regard, President Trump asserted in his meeting that regulations related to health and safety would remain strong, which might maintain or improve what companies can come up with.

Resources and accessibility

Reducing certain regulations can make it easier to access specific tools and products. Having those tools can allow businesses to move forward on projects that otherwise would be logistically or financially too difficult. But in her article, What If Regulation Is Actually Good for Innovation?, Clara Shih raises the question whether some degree of restriction can improve innovation by forcing businesspeople to think outside the box, move past the tools and products normally assumed to be necessary and design new, regulation-abiding processes that benefit companies to a greater degree. She identifies several real-life situations where regulations caused companies to find alternative routes. Andy Swans of Forbes also supports the notion that constraint maximizes innovation, encouraging businesses to place voluntary restrictions on areas such as client communication, portfolio construction and marketing.

For better or worse, out with the old, in with the new

Taking all the above points into account, it's not especially clear whether Trump's regulatory cuts would be helpful or hurtful to innovation in the long term. It might be that certain industries or types of companies feel positive ramifications while others suffer. What is certain is that change is coming. For better or worse, hold on to your hats.

Published on: Jan 26, 2017