The idea that regulations eliminate jobs has been a persistent Republican talking point this year. At Tuesday night’s GOP presidential debate, former Massachusetts governor Mitt Romney said, “Of all the Obama regulations we say no. It costs jobs.” And he wasn’t alone. Texas governor Rick Perry said that regulations “are strangling the American entrepreneurship out there.” House speaker John Boehner has urged the President to cut regulations to boost jobs.
However, in a recent article in TIME, Columbia professor Jeffrey Sachs wrote:
They [Republicans] claim, without evidence, that taxes and regulations are killing job creation, though many countries with much higher taxes and much stiffer corporate regulations have much higher employment rates than the U.S.
So who’s right?
With the help of TIME reporter Andrea Ford, I put together the chart at the top of the post, which looks at regulation and economic growth around the world. The World Bank annually ranks countries by so-called ease of doing business. They have been doing it since 2003. (The U.S., by the way, ranks very high – 5th.) Last year, for the first time they came up with a metric measuring whether countries were making it easier or harder for businesses to operate within their borders. The chart above maps major economies around the world by their five-year change in ease of doing business and their five-year growth rate. The countries to the right of the vertical line, which is most of them, reduced regulations during the past five years. The countries to the left of the vertical line made it more costly for local companies to operate in the past five years. The size of the circle corresponds to the size of each country’s economy.
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What do we see? Republicans argue that if Obama was to ease regulations that would produce jobs. If that were true, than the countries on the graph should line up in a diagonal line from the middle of the chart to the upper right hand corner, with the countries that have cut regulations the most showing the highest growth rates. But that’s not really what we are seeing here. Instead of getting a line, the chart has more of a U-shape with Argentina and Singapore at one end and China at the other, and most other countries bunched up at the bottom. Yes, China looks to have significantly reduced regulations and has grown quickly during the past five years. But Argentina and Singapore have also grown quickly and both of those countries have increased regulations during the past five years. Saudi Arabia, too, looks to have reduced its regulations the most, yet during the past five years it has grown at about the same rate as South Africa, which seems to not have reduce regulations, at least not much.
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The most important part of the graph is the huddle of countries at the bottom of the chart with the U.S. in the middle. Those countries have had a range of changes in regulations. Some have made it somewhat harder for local businesses to comply with their rules, some have made it easier for businesses to start and grow. Yet, there doesn’t seem to be a noticeable difference in growth rates. What’s also important to note is that while it is significantly easier for companies to operate in China than it was 5 years ago, China still ranks 79th on the World Bank’s list. Meaning their regulatory regime is much more restrictive than the U.S.’s, which again ranked 5th, and yet is having much higher levels of economic and job growth. I ran all this past Neil Gregory, who is a deputy director at the World Bank for indicators, and he said he too didn’t see a direct, or indirect, correlation between regulations and jobs. He said some regulations do make it harder for companies to grow, but others like those that support small business lending are essential to creating jobs.
The problem, as always, is that the story that regulations kill jobs seems logical and is an easy one to tell. And therefore will probably continue to be told, even if the data proves otherwise.