How Federal Regulation Screws Over Small Businesses: A Story of Cupcakes

I don’t like getting pushed around by anybody: the government, corporations, or fat people on buses. Probably you feel the same way. It’s understandable then, that when a large corporation does something exquisitely evil or recklessly stupid, you may feel inclined to try and regulate the problem away with the help of the federal government. Assuming, of course, that Congress itself is neither evil nor recklessly stupid, which is a fascinating political position for you to take.

Generally if you invite the government to regulate big industry you also invite big industry to pour lobbyists into Congress. Between the two they concoct a bill which makes things even better for the corporation you hate than it was before Congress started meddling.

To illustrate how federal regulation oftentimes screws over small businesses let us explore a story together. The story of three cupcake bakeries and their owners in the friendly town of Morningwood, Oklahoma:

Meet Chuck. Chuck is the CEO of a gigantic corporation called Globa-Muffs. (Technically it’s Global Muffins, Cupcakes & Landmines, Inc., but everybody calls it “Globa-Muffs.”) Normally a humongous multi-national corporation like Globa-Muffs wouldn’t keep its headquarters in a podunk town like Morningwood, but due to a complicated treaty provision with the Osiwapaha Tribe, Globa-Muffs’ offices are located directly on top of non-taxable sacred Indian burial grounds. Chuck himself lives in Connecticut, and for tax purposes has been legally dead since 1992. But his office is technically in Morningwood.

Among other products, Chuck’s company makes Delicious Hot Sticky Buns. Whenever Chuck gets a new secretary he introduces her to the office with his favorite joke, by picking up a Delicious Hot Sticky Buns wrapper off the floor and saying, “Hey, I think you dropped your name tag!” Chuck’s office has a pretty high secretarial turnover rate.

Next we have Pete. Pete grew up in Morningwood and is the owner of For Pete’s Cakes, a chain of three cupcake bakeries across town. He’s been in business for about ten years, and while the profit margin isn’t huge, it’s healthy, and he’s thinking about expanding operations into the next town over. We might call him a representative of Main Street business-types.

Did I mention that Pete’s son, Buckley, is the shortstop on the local baseball team? Pete’s super nice. He did re-marry suspiciously fast after his divorce with his first wife, but they got hitched right out of high school and frankly we all saw that coming. Nonetheless Pete and Maureen are on good terms. You would really like Pete. He has a toy train collection.

Then there’s Sandy. She’s adorable! Her whole life she’s wanted to be a baker, and two years ago she got a loan and started up Cupcakes Galore, which everybody agrees is the most unbelievably delicious cupcakes they’ve ever tasted. If you ate one of Sandy’s cupcakes your stomach would orgasm and then you would seriously contemplate selling all of your senile grandmother’s furniture (and she’s still alive, by the way) just to buy more of these mouth-watering diabetes grenades. My God they’re delicious.

Cupcakes Galore is over on the east side of town, and so it’s close to the new elementary school and those fresh housing subdivisions. Sandy’s little sister works there part-time after school and on weekends (mostly just to spend time with her), and for full-time employees she has also hired Natalie, a girl she kinda knew from her sorority, and Jason, her loveable but fairly dimwitted cousin, who is in charge of kneading dough and cleaning. Sandy can barely keep up with the demand, and she couldn’t possibly be happier.

Then guess what happens? Shall I tell you? I’m not going to tell you. It’s too awful.

No, you know what? I’m going to tell you.

Listen: somebody gets food poisoning. From a cupcake.

This takes place exactly nine hundred miles away in Placenta, Maryland, and is completely unrelated to any of the companies or people described above. (Even that dickhead Chuck.) But the person who dies happens to be smoking hot and she’s on the homecoming court at her high school, and also she’s eighteen and that’s legal so it’s okay to fantasize, and so pictures of this sadly now-dead busty girl flood all over the national news and there’s a campaign stirring to punish whichever slipshod cupcake maker poisoned this really, really hot blonde.

There is a funeral, a candlelight vigil, and then an avalanche of angry letters from old people to Congress. Congress, frantic to do anything, absolutely anything, other than address the looming deficit crisis, springs into action.

At this point you might think a singular cupcake-induced mortality in Placenta, Maryland could best be dealt with by folksy, part-time bureaucrats at the Gelding County Health Board, but such an exercise of local control would be in flagrant disregard of the US Constitution’s Commerce Clause, which clearly states “Congress may do whatever the hell it wants.”

It turns out, though, that not so many congressman know a lot about food poisoning. They need advisers. Congressional staffers are actually astoundingly competent and hard-working, particularly given what we as taxpayers angrily and reluctantly pay them. But the Legislative Assistant in charge of health, postal affairs, the Eurasian subcommittee, veterans issues, the Lawn Gnome Caucus and aviation is already pretty strapped on time. Yes, she’ll learn about cupcake regulation in between briefings, but there’s a limit as to what we can squeeze out of this particular civil servant.

Enter lobbyists:

These guys know all sorts of things about their respective issues, and it’s their job to represent the concerns of their clients, so that Congress doesn’t inadvertently screw over any businesses. Sounds good, right? In theory lobbyists are actually a positive thing, because they’re advocates which individuals and private businesses can hire to help craft the legislation which affects them.

Do you remember Pete and Sandy? They don’t have any lobbyists. They don’t even have lobbies. Do you know who does? Chuck, CEO of Globa-Muffs.

Don’t worry, though. Because Chuck’s highly-paid lobbyists work very hard to help craft federal legislation to protect public health. For instance, they convince Congress to insert a provision that every cupcake bakery has to have an egg inspector on the lookout for salmonella and other diseases; a flour-incendiary safety operations technician to ensure that no bakeries inadvertently explode; a bakery homeland security analyst to stop any potential biological threats posed by international terrorism to the nation’s cupcake supply; and a pest control specialist who can use only organic pesticides manufactured in the district of whichever congressman wrote the bill. A further tax rebate is introduced if a rabbi is kept on staff to certify stuff as kosher.

Coincidentally, Globa-Muffs already has all of these positions in its factory. The legislation doesn’t actually change anything for them at all. It’s suspiciously as if Globa-Muffs has written a legislative bill in the shape of a cookie-cutter that fits around their particular company.

Not for Pete or Sandy, though!

Pete has a full-time staff of seventeen people between his three bakeries. As owner, he reinvests most of his profits back into developing the chain and his take home pay is $120k a year. He can’t hire four new full-time employees. In order to remain in business he’s going to have to get creative. So:

Pete fires two of his employees in order to free up hiring funds. Their workload is shifted between three other employees, who are promoted to “executive” whatever they already were, only with no commiserate pay raise.

That leaves two more employees he needs, the organic “made in Dribble County” pesticide guy and the vigilant anti-terrorist personnel.

If Pete takes a pay cut and convinces his warehouse manager to convert to Judaism in order to receive the aforementioned rabbinical tax break, it frees up enough for the pesticide guy. To get sufficient capital to hire the anti-terrorist specialist he will fire his junior cupcake chef and replace him with an undocumented illegal alien at a much cheaper salary.

It doesn’t matter anyway, because three years from now Chuck and Globa-Muffs’ army of lobbyists convince Congress to create a cupcake subsidy to protect our struggling cupcake makers, and this subsidy is based on the volume of cupcakes you produce, not on the size of your company. So Globa-Muffs is given twelve million dollars on the dole while Pete is given three hundred, and Globa-Muffs turns around and uses that new capital to buy Pete’s ailing cupcake chain. Pete retires; most of his employees get laid off.

Meanwhile, small business Sandy has only three employees, remember? It is fiscally impossible for her to hire four new employees, even if she replaces her entire staff with illegal Mexican workers. She’s screwed!

Sandy takes out a huge loan to try and save her dream bakery through a vigorous advertising campaign, but it doesn’t work and she goes bankrupt. Unable to support the family or business components of her family business, she has to dispense with both. After firing her sister and her friend Natalie, mascara-streaked, quivering Sandy ultimately leads her oafish, broom-sweeping cousin Jason to the creek, where she tells him to think about rabbits before readjusting his ball cap with a shotgun like in the last scene from Of Mice and Men.

As sad story, is it not? It could have been avoided, too.

And yes, obviously there are things the government should regulate. Even the federal government. But the above illustrates why such legal incursions into industries should be done only sparingly and strategically.

You should approach federal regulation as if contemplating whether or not you need a particular medical procedure in light of the fact that there is only one surgeon on the island and he has a pretty serious drinking problem.

 

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8 Comments

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  • Keith Weiner
    December 6, 2011 - 8:33 pm | Permalink

    Regulate other industries, yes “obviously”.

    Because manufacturing cars is somehow all different somehow from making cupcakes, somehow…

  • Christopher
    December 6, 2011 - 9:21 pm | Permalink

    There is nothing the government should regulate. Nothing.

  • Alex
    December 7, 2011 - 1:43 am | Permalink

    Of course, this all has much more to do with a broken system of lobbying than it does with actual regulation.

    According to your story, the teenager dies in Maryland from cupcake poisoning, which sets off the whole regulation firestorm. Are you saying that it’s not worth it to find out exactly what killed the Maryland kid, and take steps to prevent future incidents? I mean, Cupcakes Galore is 900 miles away from MD, but who’s to say that a similar case of confectionery homicide won’t occur if no one is reminding Sandy of health regulations? Especially with her retar- I mean, “challenged” cousin working the dough…

    The real issue is that the smaller businesses have little to no voice on the matter compared to the big corporations, because, you know, money equals free speech. If the playing field was more level in this regard, it could fundamentally address most of the issues you are highlighting. It’s not that ensuring a minimum standard is a bad thing in and of itself. It’s that the methods of determining such a standard are based on who has the most cash, basically.

    I’ll use your final analogy. If federal regulation is a medical procedure and the only doctor around has a drinking problem, don’t skip the surgery. Just make sure the doctor isn’t drunk while he’s operating!

    • Sara
      December 7, 2011 - 9:55 am | Permalink

      Alex, then you’d have to worry about the doctor having the shakes.

  • Pat Percival
    December 10, 2011 - 11:16 pm | Permalink

    Would like to see you write without some of the gutter language! That way you wouldn1t have to wash your mouth out with soap.

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