Is Overregulation Driving US Companies Offshore? Myth vs Reality Revealed

OK, we get that after Texas Governor and erstwhile Presidential hopeful Rick Perry flamed out at yet another Republican Presidential debate he is not exactly the go-to guy on questions more complicated than how to spell c-a-t. But still, he is spouting a tenet of conservative US orthodoxy. To whit, that the US is heavily regulated compared to other nations and that is a primary cause of jobs being moved offshore.

Now, the trouble with this internet thingy is that it makes lots of real data available in a very short time. Aside from the inconvenience of learning that your beliefs may be right up there on the reality scale with Peter Pan and the Tooth Fairy, it does provide for some illumination of issues important to economic policy.

Turns out that the World Bank has been compiling statistics on this question for some time. And the facts are that the US is lot easier to do business in than most of the places to which jobs are being sent. Unless you have some inside info that New Zealand is secretly stealing employment without any of the rest of us knowing. In fact, China and India are among the worst places to start or run a business, according to the bank's rating.

So, all kidding aside - as hard as that may be - a nation struggling as hard as the US can ill afford to delude itself. If regulation is not an issue, let's stop wasting time and breath on it. Focus instead on the very real problems that are a problem. Heaven knows there are enough of them. JL

Catherine Rampell reports in the Economix blog:

Gov. Rick Perry of Texas is arguing that companies are sending work abroad primarily because of overregulation in the United States, and not because labor is cheaper abroad.

Is that statement true? Are American regulations so burdensome that they are driving companies abroad?
Certainly the United States tax code is impenetrably complicated, and companies do have to deal with plenty of regulations. But even so, the United States is far friendlier to business than are emerging markets like India and mainland China, according to international analyses of regulatory climates.

For the last nine years, the World Bank has been grading countries on 10 measures of business regulation: getting electricity, enforcing contracts, protecting investors, dealing with construction permits, trading across borders, registering property, resolving insolvency, paying taxes, getting credit and starting a business.

Based on these criteria, these are the top 10 countries where it is easiest to operate a business:

Singapore
Hong Kong
New Zealand
United States
Denmark
Norway
United Kingdom
South Korea
Iceland
Ireland
That’s right: The United States comes in fourth.

Hong Kong beats the United States, but mainland China — that bugaboo of American employment protectionists — does not. Instead, China comes in 91st. Despite the higher regulatory burden, American-based multinational companies have increased their employment in China by 161,400 from 2007 to 2008, a gain of about 20 percent, according to the Bureau of Economic Analysis. (The most recent data are for 2008.) In fact, American employment in China rose 77 percent in the prior decade, from 1998 to 2008.

India does even worse, with a ranking of 132nd. Edward L. Glaeser has written for Economix before about India’s struggles with having a stable and transparent regulatory system and public sector.

As they have done in China, American companies have ratcheted up their employment in India by 43,000, or about 13 percent, from 2007 to 2008. From 1998 to 2008, the number of people in India working for American companies rose by 54 percent, according to the Bureau of Economic Analysis.

In another measure of business climate and competitiveness put out by the World Economic Forum, the United States ranks fifth, again ahead of China (26), India (56) and a host of other countries where American companies are adding jobs.

Presumably, then, American companies are not attracted to these places because the business climate is more favorable.