Small business, big regulation, big problems?

I had a talk today with Steve King, researcher and blogger at Small Biz Labs. King got in touch after reading my post on the tension between regulating industry and putting up barriers to entry that shut out entrepreneurs. (The CPSIA kerfuffle over lead testing requirements for children’s products is a prime example.) As it happens, King’s research is increasingly focused on the role of government in small business.

We’re both interested in exploring how regulations written for large companies (operating on an industrial scale to serve mass markets) don’t necessarily fit small companies or independent workers (operating on an artisan scale to serve niche markets). The US has this whole legacy of rules and laws written for an industrial economy which mostly made sense for in the 20th century. But in the past decade, technology has made it possible to efficiently make and sell products on a small scale in a variety of industries—like local farms, hand-made goods, truly independent music. The laws haven’t kept up with these changes. Food regulations were largely written with agribusiness in mind, not small farms, the same way the lead testing requirements that may be appropriate for big toy manufacturers who ship thousands of identical units don’t fit crafters who make unique items.

It’s not just regulation. The employer-based health care system is probably the biggest barrier to entrepreneurship in the America. King identifies the tension in worker classification as well: it’s no longer safe to assume most workers would rather be classified as payroll employees than independent contractors.

“The regulatory environment simply isn’t set up for our current economy or the economy that we’re becoming,” King told me. The current system was shaped by “big government, big business, and big labor,” he says. That structure maybe worked in the last century. It won’t work in this one.

More and more we’re going to see small businesses and independent workers bump up against regulations written for large, industrial entities. I’d like to identify this tension in as many aspects of the economy as we can. While these conflicts are being hashed out in individual sectors, no one seems to be taking a holistic look at this. So let’s start. Help us identify industries where regulations appropriate for large players don’t fit small ones.

I’ll start with a few:

  • Agriculture. The safeguards to regulate agribusiness don’t always make sense for small farmers or artisan food producers.
  • Music. The copyright laws that record labels want strictly enforced don’t hold the same benefit for truly independent artists who want their fans to spread their music through filesharing. (Alternative forms of licensing have developed to address this.)
  • Finance. See the trouble peer-to-peer lenders have had with the SEC and state regulators.

This is an important trend. With our economy and government being transformed rapidly, there’s a huge opportunity to reshape all these structures in a way that works for entrepreneurs, reduces barriers to entry, encourages innovation and, ultimately, makes our economy more efficient. Where else is this tension playing out? Do you see examples of it in your industry? Tell us in comments, by email, or on Twitter.

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