March 16, 2017

In Illinois, 259,900 Words That Restrict Businesses

James Broughel

Senior Research Fellow
Summary

If Illinois wants to stay competitive with neighboring states, it will have to make its regulatory environment less complex.

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Lawmakers are suddenly devoting considerable attention to scaling back regulation in the United States, both in Washington and in Springfield. President Donald Trump has made it a top priority, issuing executive orders aimed at overhauling the federal regulatory process, and targeting individual regulations and groups of regulations directly. At the same time, several states are moving in the same direction. In Illinois, Gov. Bruce Rauner has made rolling back red tape a central pillar of his administration.

From a practical standpoint, there is so much state and federal regulation that it is difficult to know where to begin streamlining the code. The U.S. Code of Federal Regulations is over 178,000 pages long and includes over 1 million restrictive words (like "shall" and "prohibited"). Meanwhile, Illinois' code has over 259,000 restrictive words, double that of neighboring states like Missouri and Kentucky. Complexity becomes a problem when the rules that are unnecessary red tape distract from the important rules that are vital for protecting public health and safety.

A simple guiding principle for red tape reduction is the "worst things first" principle, which has been advanced in the field of public health but is also relevant when eliminating regulations. When rolling back rules, regulators should look for those that have three unsavory characteristics:

First, many regulations don't address real problems. Analysis by my Mercatus Center colleague Jerry Ellig finds that only about 13 percent of the analyses for the biggest federal regulations demonstrate significant evidence of a real problem. When there is no clear need for a regulation, it's unlikely to produce any meaningful benefits.

Second, many regulations are regressive. Broadly speaking, this means they make the poor worse off. Occupational licensing regulations make it harder to get good jobs as barbers, florists, contractors, interior designers and countless other professions. Zoning regulations tend to be regressive because they make it harder to build housing, thereby raising the price of rent. Environmental regulations often raise the price of energy, which consumes a disproportionate part of a poor person's budget.

Third, many regulations inhibit small businesses and new startups. Big firms that already have large compliance departments may not mind another rule or two added to the books. But for someone just thinking about getting a business off the ground, the costs of learning and complying with every requirement may be too much to overcome. Reformers should look for regulations that enact barriers to startups and create a moat around large, incumbent businesses by protecting them from competition.

If Illinois wants to stay competitive with neighboring states, it will have to make its regulatory environment less complex. The same is true at the federal level. To keep businesses from moving abroad, regulators in Washington will have to recognize that other countries are working hard to keep regulatory burdens at a manageable level. We can do the same without jeopardizing health and safety. Following the "worst things first" principle is a good way to get started.