Saturday, August 25, 2018

A level playing field -- the desirability of regulations.


     I am a firm believer that MOST companies want to be a good neighbor. They want to have fair and equitable wages and benefits for everyone. They want to do their share in the local economy so that they give as much, or more, than they take. They want to leave the world in as good of, or better, condition than how they found it. They want to produce safe products than are of benefit to people. The guiding forces of those companies want their children, neighbors, and communities to be proud of them, what they do, and how they do it.
     Alas, within the business world, what is desired is not always what can be done. This is especially true for public corporations which are in the public eye and which are often constrained to a short-term view to the next quarter's earnings. A company must be competitive if they want to continue to enable jobs, give dividends and earnings to stockholders, and continue to grow, innovate, and produce.
     When I was growing up, we had a large lumber and pulp mill as the primary economic force for the town. To the best of my knowledge, they produced high quality goods and treated their employees reasonably well. But one day I neglected to wipe off my glasses immediately after a brief shower. Later in the day, when I was cleaning them, I found that the rain had etched permanent spots in the lenses. The rain was highly acidic. Some of my friends, who had houses much closer to the mill, knew that they would have to paint their entire house at least once a year because the paint would not last longer than that. The town just considered it as part of the side effects of the company but I doubt that anyone, within or without of the company, truly liked or wanted the acid rain.
     Sometimes, doing things, that seem to be more costly, prove to be cost-effective in the long run. Thus, after examination and real-life testing, up front costs sometimes prove to be long-term savings. One example of this is a well-known bulk goods company that has a higher-than-average salary structure as well as better benefits than the general industry. Many would think that this would put them at a competitive disadvantage. However, the long-term result of this has been shown to be higher productivity, much less turnover of staff (which is very costly), and a more welcoming atmosphere for the ongoing customer stream. And all of that saves money and makes the company more competitive and profitable.
     In other cases, doing right cannot save money -- it costs money. One company that dumps all of their wastes directly into the local river or lake will have lower costs than a company which minimizes their wastes and treats remaining wastes such that they do not damage the environment. Unless the environmentally friendly company has other areas in which they are more efficient, they will not be competitive against the toxic company. (Note that the process of minimizing wastes often saves money -- but requires initial investment of time, effort, and money.)
     And this is where regulations come into play. If all the companies have the same positive requirements in place then meeting those requirements does not affect the competitive landscape of the business. All the companies can (and are indeed forced to) do the "right" thing without putting themselves into a poor competitive position.
     The regulations, in themselves, have a net neutral effect on companies' profits and cost of doing business. However, the monitoring and enforcement of those regulations do have a cost and sometimes that is a significant cost. This is the "burden of regulations" that is often discussed in political arenas and in public and social media. It is real and it can hit small businesses harder than large businesses because the gross amount is similar for the small and the large business such that, as a percentage of invested profit, it hits the small business much harder. In other words, if I make $100 profit, and I must use $35 to fulfill the needs of regulations, it will hit me much harder than a company that makes $100,000 profit and must use $5,000 to fulfill the needs of regulations.
     Regulations create a level playing field and are usually of benefit to everyone -- within and without of the company. We need to determine methods to keep that level playing field and that means ways to minimize, or distribute, the costs of monitoring and enforcement.

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