Wall Street Journal: The Red Tape Diaries: One Small Business Owner’s Struggle Against Bureaucracy

May 21, 2012

The Red Tape Diaries
One Small Business Owner’s Struggle Against Bureaucracy

As seen in The Wall Street Journal

By Nicholas N. Owens

This week is National Small Business Week, a time to celebrate the ingenuity of entrepreneurs—and to consider how government can provide better service to the small enterprises that form the backbone of American industry.

Consider the Environmental Protection Agency official who described his agency’s work as akin to crucifixion. In a Web video from 2010 that recently came to light, Al Armendariz likened regulatory enforcement to the Roman imperial practice of crucifying people to serve as an example to others: soldiers would go to “a town somewhere, they’d find the first five guys they saw, and they’d crucify them,” he explained. “And then, you know, that town was really easy to manage for the next few years.”

Mr. Armendariz’s point was that making examples of certain businesses or industries would serve as a deterrent to ensure compliance. But the way he illustrated his point provoked outrage, and within days he had resigned from the agency—proving again that the journalist Michael Kinsley was right to say that a “gaffe” in Washington is when someone accidentally tells the truth.

I know first-hand that Mr. Armendariz’s view is a truthful representation of how many regulators view their function. While serving as the Small Business Administration’s (SBA) national ombudsman from 2006 to 2009, I worked with small business owners who believed they were falling victim to unfair or excessive regulatory enforcement. All too often, I saw federal regulators take a stridently adversarial stance toward the industries they oversee.

In 2007, for example, I was contacted by Rob Latham, who runs a small Internet sales company in Greenville, S.C. Mr. Latham started his business in 2005 and was prepared to work hard to make it succeed.

He wasn’t prepared for how easily a run-in with federal regulators could bring him to the brink of ruin. That’s what happened in 2007 after he found himself embroiled in a months-long dispute with the EPA over a shipment of engines he had imported.

The issue came down to labeling. Although the product Mr. Latham was importing met the EPA’s environmental standards, regulators ordered the shipment seized because it contained labels that could be removed with a razor blade. (In other words, they were somewhat vulnerable to damage or tampering.) Mr. Latham thought the dispute could be easily resolved but was surprised by the EPA’s intransigence—its dedication to junking his entire shipment—when he tried to work with them.

Mr. Latham wasn’t ignorant of the regulations that governed his business—quite the opposite. He had carefully studied the rules that governed the products he was importing, and he thought he had taken all appropriate steps to ensure compliance. But as a small business owner with no in-house legal team, he had little idea how complicated the bureaucratic process would be.

He met with regulators in Washington to resolve the issue but found that they doubled down on their position, becoming hostile and aggressive.

That’s when he reached out to my office. Hearing of his plight, I contacted the EPA on his behalf and started working with regulators to resolve the case. Soon thereafter, the regulators relented and allowed Mr. Latham’s imports to move forward—but only after he paid a substantial penalty of $10,000, an apparent tribute to the regulators to allow them to save face.

The story ends happily: Once the EPA dispute was resolved, Mr. Latham’s business grew swiftly. Today his company boasts three warehouses and more than 20 employees.

But had Mr. Latham not connected with my office, he might have lost his business. It’s frightening to think what other small business owners encounter in similar situations. What about those who don’t know where to turn, or who aren’t lucky enough to stumble across the right advice or the right advocate?

As of 2008, small businesses faced an annual regulatory cost of $10,585 per employee, according to an SBA regulatory impact study published two years ago.

So was Rob Latham crucified? That’s too strong a word, because it’s likely he wasn’t specifically targeted—he was simply caught up in a web of red tape and bureaucracy, and the regulators had little interest in helping him get through the impasse. His struggle is a case study in why we need a regulatory regime that’s fair, accountable and allows our economy to grow again.

Mr. Owens, CEO of Magnolia Strategy Partners LLC, served from 2006-09 as national ombudsman and assistant administrator for regulatory enforcement fairness at the Small Business Administration.

Click here to watch a video from Public Notice on Rob Latham’s struggle with the EPA.

Click here to read the fact sheet.

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