When will regulation fit the size of business?

Crafters and other makers of children’s products up in arms over the CPSIA are breathing a bit easier this week. Many small business owners have been frantic for weeks because of new product safety regulations, set to take effect Feb. 10, that require expensive lead testing — even for materials that producers maintain are inherently safe. Friday night regulators announced a one-year stay for the testing requirement, to give “the staff more time to finalize four proposed rules which could relieve certain materials and products from lead testing and to issue more guidance on when testing is required and how it is to be conducted.”

This delay is in response to a massive online campaign that small business owners organized. The Handmade Toy Alliance, an ad hoc group formed to fix the law, said:

This is a substantial reprieve for our members, and it will give us a chance to work with Congress and the CPSC to make the law more equitable for small businesses. However, considerable problems remain and there is much work to be done. At least we have proof that our voices are being heard and the CPSC is no longer misinformed about the impact of the law on small business.

There have been lots of good suggestions about what’s wrong with the law and how to fix it in a way that balances its intent — to make kids’ products safer — with the needs of small business owners. Now lawmakers, regulators, and business owners have a year to sit down and figure it out.

Stepping back, I think something more interesting is happening here. The government is being forced to recognize that rules for mass-market industrial businesses don’t necessarily fit small, independent, or artisan producers. One of the key findings of Intuit’s Future of Small Busines Report last year was the rise of artisan businesses. You see this in all sorts of industries: agriculture, fashion, film. The Internet lets small producers and consumers connect and engage in a two-way conversation, rather than the old mass-market one-way broadcast. New business models sprout around this change every day.

But as the CPSIA firestorm demonstrates, the laws haven’t caught up with them. For example, one of the most revealing parts of the Omnivore’s Dilemma talks about how food safety laws written to regulate industrial-scale slaughterhouses actually make it difficult to for small farmers to produce their own meat on an artisan-scale. I see a similar pattern in the music industry: record labels want strict enforcement of copyright laws, but many independent artists want their fans to spread their music through file sharing.

You can bet the CPSIA won’t be the last law written for an industrial economy that bumps up against the nascent artisan economy. We need laws that work for both Mattel and Etsy crafters. So how should regulators deal with this change in how business is done? How can society balance the need for reining in abuses and excesses in the private sector without putting up barriers to entry that shut out entrepreneurs? Anyone have an example of models that work? Is there any research out there on this?

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