Why Big companies Love Regulations
04 June, 2013
In the previous newsletters we discussed the new regulations politicians use to try and counter what they consider unfair tax advantages. At first this seems morally just. It is easily sold to the public. However, there are some unintended consequences to this line of thinking.
The small and medium sized owners that are internationally active are the ones who are mostly affected by this. More reporting. More legislation. More compliance. Writing hours. All the bureaucratic nonsense that suffocates the ordinary business owners, who usually completely lack affinity doing administration.
It costs them money. They have to hire accountants and advisors. All that to make sure they comply with all the regulations the bureaucrats come up with.
Another effect is that because there is so much tax and regulation in the West, ambitious and productive young people decide to move their business elsewhere. It also gets harder for foreign parties to engage in business in the West. All this reporting poses extra costs and risks. For example, some financial institutions simply decide not to provide their services to Westerners anymore.
When you are an American, you simply will have a hard time opening a bank account in a lot of places outside the US. We also experienced Swiss banks that will not take on Germans, French and Dutch clients.
This trend is ongoing. It is getting harder to engage in business for most international entrepreneurs. A lot of people think; this is not important for me. Only rich people and evil tax avoiders will be affected by this. But check it the next time you do groceries. Pure local products are almost nonexistent. All is imported by multinational companies. If this process is frustrated, prices will go up.
The intention was to have restrictions on big corporations. Are there any? Perhaps a little. But here is why they do not care.
It is not cheap setting up offshore structures. Getting tax advice. Setting up legal entities. Hiring office space. At least, for the vast majority of companies. But lets look at it from a multinational perspective. A big billion dollar company. They do not care about tens of thousands of Euros in legal fees. They do not care about transferring some of their activities abroad. They do not care about hiring a few top lawyers at 500 Euros an hour.
They are happy to do so. Because they know most businesses cannot afford that. Small and medium sized competition? Easily weeded out. That is why with heavily regulated industries usually only a few players are left.
Their top lawyers are able to use every inch of the law to their advantage. They will even lobby for regulation to be implemented. The more regulation, the less competition, the better. So do not be fooled by the politicians and their hard talk. They might even be paid to do so.
All in all it is getting more difficult for small and medium sized business owners and individuals in the free and capitalist West. And nobody can really predict where it will end. Who knows what will be regulated in the future that will have unintended consequences.
Taking out undeclared cash on holiday? Please fill in form W-44 and provide a legalized utility bill. Buying a house in the south of Spain? Get approval of the foreign investment committee. Wiring money funds to your kid who is studying abroad? He better have receipts of all the drinks he buys!
To summarize. All these regulations do not have the intended effect. A few big corporations, banks, and bureaucrats are better off. Everybody else worse.
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