Competition And The Small Business Landscape: Fair Competition And A Level Playing Field
Summary
The printed record of the House Committee on Small Business hearing "Competition and the Small Business Landscape: Fair Competition and a Level Playing Field," convened March 1, 2022, Small Business Committee Document Number 117-046. Members open with tributes to their late colleague, Congressman Jim Hagedorn. Chairwoman Velazquez says corporate concentration has increased in over 75 percent of industries and that new firms fell from 38 percent of all businesses in 1982 to 29 percent in 2018, and cites the president's executive order on competition. Ranking Member Blaine Luetkemeyer says small businesses face the highest inflation rates in 40 years. Witnesses came from the American Action Forum, the American Antitrust Institute, the University of California, Berkeley and the Open Markets Institute.
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[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
COMPETITION AND THE SMALL BUSINESS
LANDSCAPE: FAIR COMPETITION AND A LEVEL
PLAYING FIELD
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 1, 2022
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 117-046
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-930 WASHINGTON : 2022
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
Melissa Jung, Majority Staff Director
Ellen Harrington, Majority Deputy Staff Director
David Planning, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Nydia Velazquez............................................. 1
Hon. Blaine Luetkemeyer.......................................... 1
WITNESSES
Dr. Douglas Holtz-Eakin, President, American Action Forum,
Washington, DC................................................. 8
Dr. Diana L. Moss, President, American Antitrust Institute,
Washington, DC................................................. 9
Dr. Carl Shapiro, Distinguished Professor of the Graduate School
at the University of California at Berkeley, University of
California, Berkeley, Berkeley, CA............................. 11
Mr. Barry Lynn, Executive Director, Open Markets Institute,
Washington, DC................................................. 13
APPENDIX
Prepared Statements:
Dr. Douglas Holtz-Eakin, President, American Action Forum,
Washington, DC............................................. 36
Dr. Diana L. Moss, President, American Antitrust Institute,
Washington, DC............................................. 46
Dr. Carl Shapiro, Distinguished Professor of the Graduate
School at the University of California at Berkeley,
University of California, Berkeley, Berkeley, CA........... 52
Mr. Barry Lynn, Executive Director, Open Markets Institute,
Washington, DC............................................. 71
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
ACT/The App Association...................................... 92
Center for American Entrepreneurship......................... 99
CPR - Center for Progressive Reform.......................... 105
Digitally Driven: 2021....................................... 209
Engine....................................................... 254
Bettina Hein Testimony....................................... 282
NBER Working Paper Series.................................... 288
Public Citizen............................................... 324
SBE - Small Business & Entrepreneurship Council.............. 327
SCL - Society of Composers & Lyricists....................... 331
South Carolina Small Business Chamber of Commerce and
American Sustainable Business Network Statement............ 334
COMPETITION AND THE SMALL BUSINESS LANDSCAPE: FAIR COMPETITION AND A
LEVEL PLAYING FIELD
----------
TUESDAY, MARCH 1, 2022
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room
2360, Rayburn House Office Building and via Zoom, Hon. Nydia
Velazquez [Chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Golden, Davids,
Phillips, Newman, Bourdeaux, Carter, Delgado, Houlahan, Kim of
New Jersey, Craig, Luetkemeyer, Williams, Stauber, Meuser,
Tenney, Garbarino, Young Kim of California, Van Duyne, Donalds,
and Fitzgerald.
Chairwoman VELAZQUEZ. Good morning. I call this hearing to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
Before we get started, I would like to take a moment to
recognize the passing of our colleague, Congressman Jim
Hagedorn, the Ranking Member of the Subcommittee on
Underserved, Agricultural, and Rural Business Development. He
served on this Committee beginning in 2019 when he was first
elected to Congress and over the years established himself as a
productive Committee Member and a staunch supporter of small
businesses. Even during his courageous battle with cancer, Mr.
Hagedorn remained active on the Committee and never stopped
advocating for the people and entrepreneurs of southern
Minnesota. I respected his commitment to serving America's
small employers and I was proud to work with him on several
bipartisan initiatives. At this time, my thoughts are with his
wife, family, friends, staff, and everyone else that knew him.
I would like to take a brief moment of silence in his honor.
I know that many on the Committee had the opportunity to
work with and get to know Congressman Hagedorn, so I would like
to recognize them to say a few words. First, I would like to
recognize the Ranking Member, Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Madam Chair, for your kind
words about our friend and colleague, James Hagedorn.
Jim dedicated his life to public service. He was a strong
Christian and worked tirelessly on behalf of his constituents.
As a representative from Minnesota's First District and our
Ranking Member of the Subcommittee on Underserved,
Agricultural, and Rural Business Development, he was a champion
for both the small business and agricultural community. In this
Committee, Jim led legislation to improve resources for small
businesses, advocated for rural entrepreneurs, and always
upheld constitutional values. We know that his work to uplift
small businesses in rural communities will be remembered for
years to come.
Dealing with a long battle with cancer, he never lost his
optimism, sense of humor, and diligent work ethic. We will
greatly miss his presence on this Committee and in Congress.
His genuine kindness and uplifting spirit are rare.
In reading the kind words shared about Jim after he passed,
it was said, and I quote, ``It is hard to imagine someone more
passionate about serving the people of southern Minnesota than
Jim.'' He was a great man and patriot, and our thoughts and
prayers are with his family, friends and staff.
Thank you, Madam Chair. I would like to yield now to the
gentleman from Minnesota, Mr. Stauber, to share a few words for
his colleague from his home state.
Mr. STAUBER. Well, thank you very much, Ranking Member
Luetkemeyer, and Madam Chair, for those kind words. I think
that Jim gave it all he had and he loved nothing more than
serving the First District of Minnesota. He loved his small
farmers and he loved his small business. And he came to
Congress with passion. He and I came in together, and he came
with passion. He came with integrity. And I think for those of
you who do not know, I think that we had a GOP Small Business
Conference led by Ranking Member Luetkemeyer. It was about 2-1/
2, maybe 3 months ago. Jim Hagedorn brought his father there to
that morning breakfast. And do you remember how proud he was to
introduce his father, Tom Hagedorn, a former Member of
Congress? And you could just see father and son, they were just
beaming with pride. And Jim was fighting the cancer for the
second time. And having been close to Jim, I can say he never
once complained about what he was going through. He battled it
with courage. He had faith. Unshakeable faith. And do you all
remember just, it was 3 weeks ago that he passed a bipartisan
piece of legislature out of this Committee. And it was on Zoom.
Unfortunately, we could not be here but this is who he was. And
very proud of his home state of Minnesota. And I am just proud
to have been a colleague of his. I learned a lot from Jim. His
passion. And today, Roger Williams and I, we made the command
decision to put his nameplate up here. He is with us in spirit
today. And I wrote on the paper in front of his name tag, Madam
Chair, ``fiscal responsibility,'' because Jim Hagedorn loved
his fiscal responsibility and I see my good friend Mr. Phillips
down there. I know he will have some good things to say, too.
But, you know, it is unfortunate that it takes something like
this to bring us together but we can do better in Congress. And
Jim wanted it better. His family, his father, and he gave it
all he had for this country and we are going to miss him
deeply. Rest in peace, Jim Hagedorn.
And I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Stauber. The gentleman
yields back.
Now I recognize the gentleman from Minnesota, Mr. Phillips,
for a brief statement.
Mr. PHILLIPS. Thank you, Madam Chair. And thank you to my
friend, Pete Stauber, for the wonderful words about Jim.
Just a quick story because it is not one I have told much,
but in 2019, Jim wanted to bring his nephew to the White House
Christmas party. And wanted also to go with his wife, Jennifer
Carnahan. And they needed an extra ticket. So, I volunteered
mine. Little did I know that meant I also had to go with them
to the White House Christmas party that year. So, Jennifer, his
wife, Jim, and I, and Jim's nephew went to the White House
Christmas party. And it was one of the more memorable evenings
of my tenure in Congress to see Jim beaming with pride about
bringing his nephew, his nephew's extraordinary experience, and
just the simple humanity that my friend Pete just referred to.
We are not Democrats and Republicans; we are Americans. Jim was
a gentleman. We did not always agree, of course. He had a wry
sense of humor. He did care about southern Minnesota, this
country. He persevered. You would never know he was fighting
for his life his entire term in Congress. In fact, I think just
about a week before he passed away, he declared his run for
2022.
He will be missed. And I just hope we use his memory as a
blessing and as an inspiration to all of us to look beyond our
party labels and get good work done and in the spirit of fiscal
responsibility, humanity, and decency. May his memory be for a
blessing. Thank you.
Chairwoman VELAZQUEZ. Thank you, Mr. Phillips. And thank
you for all the kind words. He will be missed.
Now, turning to our hearing, I would like to begin by
noting some important requirements. Standing House and
Committee rules will continue to apply during hybrid
proceedings. All Members are reminded that they are expected to
adhere to these rules, including decorum.
House regulations require Members to be visible through a
video connection throughout the proceeding, so please keep your
cameras on. Also, please remember to remain muted until you are
recognized to minimize background noise.
In the event a Member encounters technical issues that
prevent them from being recognized for their questioning, I
will move to the next available Member of the same party and I
will recognize that Member at the next appropriate time slot
provided they have returned to the proceeding.
For those Members physically present in the Committee room
today, in accordance with the attending physicians most recent
guidance, masks are optional and no longer required.
Now let's get into the hearing.
For generations, achieving the American dream and starting
a business have gone hand in hand. Millions of Americans have
utilized entrepreneurship to support their communities and
create better lives for their families.
Business owners may start small, but the goal is almost
always to grow the enterprise, reach more customers, and hire
more employees. As these firms evolve, they build up the
American economy and produce numerous benefits for our society.
These entrepreneurs are the bedrock of our economy, accounting
for nearly 90 percent of all private-sector employers and
generating roughly two-thirds of all new jobs. However, too
often, we take our entrepreneurial ecosystem for granted.
The ability of entrepreneurs to start and grow a business
is predicated on the existence of a level playing field between
large corporations and their small peers. Competition is the
precondition that allows small businesses to thrive.
In fact, this idea of competition underpins the entire
American economy. More competition leads to lower prices,
higher quality goods and services, greater variety, and
innovation that moves our country forward.
Unfortunately, longstanding trends indicate that our
economy is becoming less competitive. Today, in over 75 percent
of industries, there is more corporate concentration, which has
given large companies more market power than they had 20 years
ago. From high-tech startups to family farms, small firms
across nearly every industry are struggling under the weight of
outsized corporate power.
As consolidation has increased, small business creation has
suffered. Aside from the uptick in new business registrations
from 2020 and 2021, the share of small firms entering the
market had been declining since the early 1980s. In 1982, new
firms constituted 38 percent of all businesses but that fell to
only 29 percent in 2018.
The pandemic ignited a wave of small business creation,
with new business applications reaching record highs in 2021.
This is encouraging, but at the same time, we must ask if these
businesses have a fair opportunity to develop without being
crushed by their corporate competitors.
The federal government has a long tradition of creating
rules and regulations that minimize anti-competitive behavior
dating back to the 1800s. One of the primary means of
protecting competition is enforcing antitrust laws. These laws
help establish the free market rules, seeking to root out anti-
competitive practices, like mergers and acquisitions. However,
antitrust laws are just one tool at the government's disposal.
Enforcement of intellectual property, labor, and consumer
protection laws are also critical to rooting out anti-
competitive practices.
So today, I want to survey the current competitive
landscape and discuss what is needed to ensure a level playing
field for small businesses and entrepreneurs. When small
businesses have a chance to compete, they can achieve great
things and provide tremendous benefits for our country. That is
why it is important to assess the current environment to see
how larger businesses are in some cases helping to facilitate
market competition and in others tipping the scales against it.
The Biden administration understands this dynamic. Last
July, the president issued an executive order directing
government agencies to examine ways to increase competition to
benefit consumers, workers, farmers, and small businesses. The
order also established a White House Competition Council to
monitor the rising power of large corporations in the economy.
I hope that this hearing allows us to build off these
actions and discuss more ways we can ensure a handful of
dominant players are not stifling the growth of small
businesses.
I would now like to yield to the Ranking Member, Mr.
Luetkemeyer, for his opening statement.
Mr. LUETKEMEYER. Thank you, Madam Chair. And also, thank
you for the opportunity to honor the memory of Mr. Hagedorn
this morning. I would also like to thank you for holding the
hearing today.
As we all know, later this evening, President Biden will
deliver his first State of the Union Address. It has been
roughly 400 days since President Biden has taken office and I
think we need to also take a look at the state of small
business. In my view, when we do, we see it is in a crisis.
Small businesses are being crushed by soaring prices as they
face the highest inflation rates in 40 years.
I have heard from contractors that are unable to bid on
jobs because the cost of construction materials continues to
skyrocket into the unknown. Restaurant owners have limited
their menus and shortened their serving hours as the high price
of food and labor challenges their bottom line. And just last
month, this Committee heard from an entrepreneur who was forced
to narrow his scope of business due to the climbing prices at
the gas pump.
Next, our job creators need workers. As we pass Help Wanted
signs on the doors across main street, it is clear small
businesses cannot compete with the government to get their
employees back to work. Unprecedented government stimulus
payments have led to 10.9 million job openings in this country,
and despite historic numbers of small business owners raising
compensation, nearly half of small businesses cannot find
workers.
Another problem is that of the supply chain disruptions
that are leading to lost revenue. Ninety percent of small
businesses have been affected by supply chain disruptions
according to NFIB. As consumer demand climbs, our nation is
plagued by backlogs at the ports and truck driver shortages.
The supply chain bottlenecks have resulted in the scarcity of
key materials, project delays, and new challenges for business
owners to serve their customers.
Also, crime is devasting small businesses. Smash and grab
crime waves are damaging main street storefronts, leaving small
business owners to pick up the pieces. Looting not only leads
to broken windows and stolen goods, but small businesses have
also been forced to halt operations and even face increases in
insurance premiums.
Another problem is that of the regulations that are
hamstringing recovery and progress. With all these headwinds,
the last thing small businesses need is more regulations.
According to the American Action Forum, the Biden
administration capped off its first full year in office with
more than $200 billion in regulatory costs and 131 million
hours in new annual paperwork.
These challenges placed businesses at a competitive
disadvantage as they lack the staff, ability to absorb costs,
pricing flexibility, long-term contracts, and purchasing power.
Although innovative and nimble, small businesses,
entrepreneurs, and startups often operate on very thin margins.
Just as concerning, this administration continues to put
small businesses on the back burner. As Members of the
Committee, it is our job to advocate for small businesses and
conduct oversight.
Secretary Yellen continues to ignore the law, this
Committee, and small businesses. She is now over 310 days past
the April 26th deadline and law for her to testify before this
Committee. If a small business owner was late on his legal
responsibility, I am confident the IRS would not exercise this
level of leniency and allowances. This is another example of
the administration's rules for thee but not for me.
This Committee has been fortunate enough to hear testimony
from SBA Administrator Guzman. However, Members of this
Committee deserve responses to questions submitted for the
record 9 months ago and throughout this Congress regarding
important programs that service our small business
constituents.
The current economic climate for small businesses in
response to the Biden administration are inexcusable. Main
street creates approximately two-thirds of all new jobs and is
key to our nation's recovery from the pandemic. However, the
Job Creators Network Survey found only 7 percent of small
businesses have fully recovered from the pandemic. It is clear,
endless government spending in Washington and constantly
changing mandates are not working for small businesses. We must
champion pro-growth policies of lower taxes and deregulatory
actions that allow small businesses to operate independently.
In short, the multitude of challenges facing the nation's
job creators put them at a competitive disadvantage. The state
of the small business economy must improve. I look forward to
hearing from our witnesses today on how we can restore the
small business economy and decrease barriers to competition for
small businesses.
With that, Madam Chair, I yield back.
Chairwoman VELAZQUEZ. Thank you, Mr. Luetkemeyer. The
gentleman yields back.
I would like to take a moment to explain how this hearing
will proceed. Each witness will have 5 minutes to provide a
statement, and each Committee Member will have 5 minutes for
questions. Please ensure that your microphone is on when you
begin speaking and that you return to mute when finished.
With that, I would like to introduce our witnesses.
Our first witness is Dr. Diana Moss, President of the
American Antitrust Institute. Dr. Moss has an in-depth
understanding of antitrust issues with an expertise in digital
technology, electricity, petroleum, food and agriculture,
airlines, telecommunications, and healthcare. She is also
adjunct faculty in the Department of Economics at the
University of Colorado at Boulder. Thank you for joining us
today, Dr. Moss.
Our next witness is Dr. Carl Shapiro, distinguished
professor at the University of California-Berkeley. Dr. Shapiro
has served on the President's Council of Economic Advisors and
was the Deputy Assistant Attorney General for Economics at the
Antitrust Division of the U.S. Department of Justice. He holds
a Ph.D. in Economics from MIT and he has written extensively on
competition policy and antitrust economics. We appreciate you
joining us today, Dr. Shapiro.
Our third witness is Mr. Barry Lynn, Executive Director of
the Open Market Institute. Over the past 2 decades, Mr. Lynn
has made significant contributions to our understanding of how
monopolies threaten democracy, individual liberties, security,
and prosperity. He has authored three books and written
extensively on antitrust and fair competition. He was
previously the Executive Editor of Global Business Magazine and
a correspondent for the Associated Press.
Thank you, Mr. Lynn, for being here today.
Now, I will yield to the Ranking Member to introduce our
final witness.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Our next witness is Dr. Douglas Holtz-Eakin. Dr. Holtz-
Eakin is the president of the American Action Forum and one of
the most important economic thinkers in our country. He has
served on the Council of Economic Advisors multiple times,
first serving as a senior staff economist from 1989 to 1990,
and then again as a chief economist from 2000 to 2001. Dr.
Holtz-Eakin also served as a sixth director of the
Congressional Budget Office. He served in this nonpartisan
capacity from 2003 to 2005. Additionally, Dr. Holtz-Eakin was
appointed to serve as a commissioner of the Financial Crisis
Inquiry Commission in 2009. Dr. Holtz-Eakin, welcome to the
Committee. It is a pleasure to have you here in person this
morning. Given the current economic conditions facing small
businesses, the stakes could not be higher for our nation and
we hope to discuss many of these topics with you today. I am
looking forward to this morning's conversation and hearing from
all our witnesses.
And with that, Ms. Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back. Thank you
all for joining today.
Dr. Moss, you are recognized for 5 minutes.
Ms. MOSS. Thank you, Chairwoman Velazquez, and Members of
the Committee. It is an honor to be here today to lend the
American Antitrust Institute's perspective to the issue of
competition and----
Chairwoman VELAZQUEZ. Dr. Moss, you are muted.
Ms. MOSS. Can you hear me? You can hear me? Okay, let me
continue.
My testimony will focus on four important topics that are
relevant to today's hearing. They relate specifically to how
high concentration and the emergence of dominant firms----
Chairwoman VELAZQUEZ. Okay, Dr. Moss, let's go to the next
witness. We cannot hear you well.
Mr. LUETKEMEYER. Dr. Holtz-Eakin, you may be the only one
we get to hear this morning.
Mr. HOLTZ-EAKIN. That is the advantage of being here.
Mr. LUETKEMEYER. That is okay; right?
Chairwoman VELAZQUEZ. Okay, so we are going to start with
Dr. Holtz-Eakin until we fix the technical difficulty.
You are welcome, sir.
STATEMENTS OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION
FORUM; DIANA L. MOSS, PRESIDENT, AMERICAN ANTITRUST INSTITUTE;
CARL SHAPIRO, DISTINGUISHED PROFESSOR OF THE GRADUATE SCHOOL AT
THE UNIVERSITY OF CALIFORNIA AT BERKELEY; BARRY LYNN, EXECUTIVE
DIRECTOR, OPEN MARKETS INSTITUTE
STATEMENT OF DOUGLAS HOLTZ-EAKIN
Mr. HOLTZ-EAKIN. Thank you, Chairwoman Velazquez and
Ranking Member Luetkemeyer, Members of the Committee. It is a
privilege to be here today to discuss this important topic. And
I will make a couple of points and then I look forward to
answering your questions.
To begin, I do not need to remind this Committee of the
importance of small businesses in the American economy. A lot
of the discussion, the public discussion today is about big
firms, and you hear a lot about them, but the reality is that
small businesses are the heart of the American economy. There
are over 32 million small businesses. Well over 95 percent of
all businesses are small businesses. They have 60 million
employees, which is nearly half of all employees in the United
States. And in 2019, part of the pandemic, small businesses
created 1.6 million new jobs, which is over 80 percent of the
new job creation in that year. They are central to growth in
the U.S. economy. They will be central to the recovery from the
pandemic recession. And they are spread throughout the economy.
I have tabled my written testimony which shows every sector is
populated by small businesses. They are a pervasive phenomenon.
The other important aspect of small businesses is the
dynamics. As the Chairwoman mentioned in her remarks, we have
lots of new startups every year. And indeed, coming out of the
pandemic in 2021, we have 5.4 million applications for new
businesses. That is up 53 percent over prior applications
before the pandemic. But if history is any guide, roughly 50
percent of them will fail in the first 5 years. And that
process of entry, growth, sometimes failure, leads to the fact
that in every sector of the economy, small and large businesses
exist side by side. And that is the norm, not the exception. In
the economy as a whole, 62 percent of firms are under 5
employees, 89 are under 20, 99.6 are under 500 employees. So,
there is a lot of small businesses out there. And only a very
tiny fraction, less than 1 percent, are large employers of over
5,000 employees. And so, the discussion that is dominated by
these larger firms I think is misplaced if we want to
understand the best for the future of the economy.
Now, to my eye, the best single thing this Committee and
Congress as a whole can do to promote fair competition is to
support the continued entry of new businesses. To apply the
competitive pressures that you mentioned in your opening
statement, Chairwoman. That is the thing that will discipline
large firms the best, has the least potential for unintended
consequences. Good competitive pressures have few of those.
Will provide American households with value for their money,
variety and innovation, and is exactly what the economy needs.
Now, if one looks at the National Federation of Independent
Business Surveys of Small Businesses, one of the things that
becomes real clear is that on a regular basis they complain
about the cost of regulation and it is one of the biggest
barriers for small businesses. And so, one thing to keep an eye
on is the increasing cost of the regulatory state as a great
barrier to entry, and thus, a great protector of large
incumbents. And anything that can be done to keep that
regulatory barrier to a minimum would be important.
During the 8 years of the Obama administration, that
administration finalized a major regulation, something that
cost more than $100 million to comply with, at an average rate
of 1.1 per day every day for 8 years. A total self reported--
these are their numbers--regulatory burden of $890 billion.
That is a $100 billion stealth tax increase every year and I
think one of the reasons we saw diminished entry rates over
that period. That growth and regulatory state stopped for
several years. But as the Ranking Member mentioned, in the
first year of the Biden administration, we saw over $200
billion of regulatory costs. That is the largest first year
number of any administration we have tracked. I would be
concerned about that.
The second thing is, at this moment, what small businesses
are most concerned about, the number one thing in the surgery
is inflation. And the inflation that the United States has has
a component which is due to supply chain difficulties and which
many nations share. We hear this a lot. Europe saw inflation
rise about a percentage point a quarter during 2021. It went
from basically 0 to 4 percent. But the U.S. has a unique
inflation problem, a jump that is the third largest in the
post-war history, and it contains not just those supply chain
components but also excessive demand from, in particular, the
American Rescue Plan, a $1.9 trillion stimulus at a time when
the economy is growing at 6.5 percent. History shows that if
you overstimulate an economy that is growing rapidly, you will
create inflation. And we have created a very big inflation
problem in the United States. I expect that it will be
difficult to tame.
Current circumstances, the tragic invasion of Ukraine, will
exacerbate commodity and energy prices that will add to the
persistence. Workers are demanding higher wages, and inflation
expectations have gone from 3 to nearly 6 percent in one year.
That is the recipe for more durable inflation that will be much
harder to fight. So, this is an environment that is very tough
for small businesses. Fighting inflation and keeping regulatory
burdens low are two important steps to help in their future.
Thank you.
Chairwoman VELAZQUEZ. Thank you.
Now let's try this again. Dr. Moss, you are recognized for
5 minutes.
STATEMENT OF DIANA L. MOSS
Ms. MOSS. Thank you, Chairwoman Velazquez and Members of
the Committee. It is an honor to be here today to lend the
American Antitrust Institute's perspective to the issue of
competition and small business.
My testimony will focus on four important topics that are
relevant to today's hearing. They relate specifically to how
high concentration and the emergence of dominant firms and
oligopolies affect small business and entrepreneurship.
First, small business is an integral part of the U.S.
economy. It accounts for a significant portion of all new jobs
and economic activity, driving innovative and competitiveness,
but there are indicators that small business may be in decline.
From 1998 to 2014, the small business share of GDP fell and the
portion of real GDP accounted for why small business slowed
relative to large business.
This translates to hundreds of billions of dollars that
would otherwise deliver benefits from small business in terms
of innovation, economic development in smaller communities, and
injecting competitive discipline and resiliency into our
markets.
Second, there is evidence that decades of weak antitrust
enforcement has adversely affected the competitive process
where small business is particularly exposed. Economic research
identifies the role of increasing concentration and potentially
driving up prices, slowing rates of firm entry, increasing gaps
in wage and wealth inequality, and higher returns for only the
largest firms. This era was born of conservative ideology that
gave too much weight to the risk that antitrust enforcement
would chill competition and less weight to the risk that
consolidation and anticompetitive conduct would harm it. This
has put competition, our markets, and the democratic principles
that support them at risk. The exercise of market power harms
virtually all market participants. It hurts consumers through
higher prices, lower equality, and less innovation. Producers
are squeezed through lower prices paid for their products and
services, and smaller businesses are harmed through higher
costs, barriers to market entry, and the threat of retaliation.
Third, horizontal and vertical integration can create and
reinforce high concentration that disrupts the role of small
business. Mergers can increase a dominant firm's ability and
incentive to cut off smaller rivals' access to critical inputs
or distribution or to engage in predatory behavior. This was a
concern for small craft brewers in the merger of AB InBev and
SAB Miller. It is also a concern in beef processing where
Members of the domestic packer cartel, which is vertically
integrated now into cattle supply have incentives to force out
smaller, independent ranchers. The court also noted that in the
merger of AT&T and Time Warner consolidation would frustrate
innovation from smaller firms with innovative, over-the-top
models for delivering content. And in the FTC's pending
monopolization case against Facebook, the effect of
exclusionary conduct on smaller rivals plays a central role.
Finally, legislators and policymakers should consider the
importance of a public policy approach to competition to
promote the role of small business in the economy. This would
tap into multiple tools in the competition policy toolkit,
including stronger antitrust enforcement and pursuing mergers,
cartels, and strategic conduct that neutralizes smaller rivals,
but it also includes antitrust role in policing the abuse of
intellectual property and deceptive practices that are designed
to squeeze out smaller rivals.
However, it is important to recognize that antitrust
enforcement may not focus on certain things that are priorities
for small business. For example, antitrust is concerned with
harm to competition and the competitive process, not
independent competitors. Enforcers may challenge acquisitions
of smaller rivals who seek to be acquired and maximize their
acquisition prices under the venture-capital backed startup
model.
The same is true of noncompete clauses, which may be
disfavored by antitrust enforcement but used by small business
to protect trade secrets.
Finally, some antitrust remedies put small business in a
very difficult position. For example, conduct remedies are
enforceable only if smaller firms that are the target of
anticompetitive behavior complain to enforcers. These firms
often fear retaliation from dominant firms and are therefore
reluctant to step forward.
These complementarities and tensions highlight the
importance of promoting strong antitrust enforcement to do what
it was designed to do, not to task it with solving all
problems. Antitrust should work together with other policies to
support and promote small businesses. These include labor law,
intellectual property law, consumer protection law, procurement
practices, and others.
Thank you very much, and I look forward to your questions.
Chairwoman VELAZQUEZ. Thank you, Dr. Moss.
Now we recognize Dr. Shapiro for 5 minutes.
STATEMENT OF CARL SHAPIRO
Mr. SHAPIRO. Good morning. Thank you for inviting me to
testify in front of you today. I hope to provide you with a
unique and valuable perspective based on my experience as a
professor who has been studying competition policy for over 40
years, as someone who served twice as a chief economist in the
Antitrust Division at the Department of Justice, and as an
economic expert witness who has testified numerous times in
federal court on behalf of the government in important
antitrust cases.
I would like to emphasize three main points. First, I
encourage this Committee to reaffirm that the goal of the
antitrust laws is to promote and protect competition throughout
the American economy. This will benefit small businesses but
applies throughout the entire economy.
Second, I offer specific recommendations for how Congress
can reinvigorate antitrust enforcement, correcting errors made
by the courts in recent decades.
Third, if this Committee would like to further assist small
businesses that are facing powerful competition from larger
firms, many policies other than antitrust are available and
should be used.
There is an active debate today about what the goals of
antitrust should be. My answer to that is simple. Antitrust
should be about promoting and protecting competition. Full
stop. We have learned over many years that competition delivers
enormous benefits to our society, fueling economic growth,
innovation, and rising standards of living.
However, competition is messy. Competition can be rough and
tumble, and competition can feel deeply unfair when one loses.
We all say we like competition, but who really welcomes a
formidable rival in any domain, be it love, sports, or
business?
Nonetheless, promoting competition does not mean shielding
any businesses from the buffing winds of legitimate rivalry.
Not large firms with outsized political influence, nor small
firms struggling to compete against larger ones with lower
costs.
My written testimony describes a positive program for
strengthening our antitrust laws to better promote and protect
competition in the 21st century economy. The basic idea is to
shift the law by establishing a number of rebuttable
presumptions in favor of antitrust plaintiffs. My written
testimony has a number of examples, and my attached paper has
more, but here are two. If a dominant firm requires its
customers to deal with it exclusively, that presumptively
violates the Sherman Act. Or, if a dominant firm acquires a
significant actual or potential rival, that presumptive
violates the Clayton Act.
The changes I recommend would help protect small businesses
from predatory and exclusionary conduct by dominant firms. The
changes I recommend also would help protect small businesses
from anticompetitive mergers. I have been in favor of
strengthening merger enforcement for at least 25 years. As an
example, I testified a few years ago on behalf of Steves Doors,
a 150-year-old family firm based in San Antonio, Texas, that
manufactures doors used in homes. Steves Doors successfully
challenged a merger between two of the leading suppliers of
door skins, a critical input into the manufacturer of doors.
That merger threatened to drive Steves Doors and other small
door manufacturers out of business.
Antitrust law also could be modernized to give small
businesses more latitude to cooperate in order to compete more
effectively against larger firms. In particular, Congress could
establish a presumption that when a group of small businesses
cooperate to better serve their customers by replicating what
their larger rivals can do internally, that cooperation does
not violate the Sherman Act.
Finally, let me address those whose calls for stronger
antitrust enforcement are motivated by concerns about the
political power of large corporations. I very much share those
concerns. Very much. We urgently need campaign finance reform,
including greater transparency regarding money in politics to
control the excessive political power of large corporations,
not to mention billionaires.
But asking antitrust to solve these political problems is
very likely to be counterproductive. The antitrust enforcement
agencies are ill-suited to tackle issues beyond competition.
Indeed, the core mission of antitrust, to promote competition,
could easily be undermined if we ask antitrust to solve
problems unrelated to competition. For example, asking the
Department of Justice to block mergers that enhance political
power as distinct from economic power would necessarily
politicize antitrust enforcement, which strikes me as extremely
dangerous and unwise.
Fortunately, antitrust is just one arrow in the quiver of
available policies to assist small businesses. For example, in
the meat packing industry, the Biden administration is pursuing
a number of policies to expand independent processing capacity
and to combat abuses by large meat packers and processors, in
part by updating rules under the 1921 Packers and Stockyard
Act. As another example, financial service regulators could
adjust their rules in favor of community banks if preserving
more community banks is judged to be in the public interest.
Thank you very much. I look forward to taking your
questions.
Chairwoman VELAZQUEZ. Thank you, Dr. Shapiro.
Now we recognize Mr. Lynn for 5 minutes.
STATEMENT OF BARRY LYNN
Mr. LYNN. Chairwoman Velazquez, Ranking Member Luetkemeyer,
thank you for inviting me to speak. I am Barry Lynn and I
direct the Open Markets Institute.
Today, I am going to make three simple points. First,
independence is essential to American democracy. The
declaration is not simply about independence of nation from
nation. It was also about the independence of person from
person. And from the first, Americans understood such
independence required the liberty to work one's own land,
ideas, labor, and business free from interference by people
with more power.
This vision was based on the idea that only someone fully
independent can be trusted in political debate and that, to be
fully in control of one's own mind and one's own voice requires
being in control of one's own means.
Second, antimonopoly is the foundation of independent
business. From the first, the American people fought to make
laws and rules to protect the property of the individual,
including independent businesses, from all predation. This
meant engineering open markets where every individual is free
to succeed based on their own efforts. This meant regulating
corporations to ensure they are used to serve people, not to
exploit them. We see this in the Constitution with its system
of checks and balances. We see it in the Northwest Ordinance,
America's first law, that blueprint for the society Americans
wanted to build. That careful plan to outlaw slavery. To divide
land into family-sized plots. To ban predatory corporations. To
provide free education to all. The result was the American
system of liberty.
After the Civil War, the network technologies of railroad
and telegraph upset traditional balances and forced Americans
to make new laws to regulate private power--the Interstate
Congress Act, the Sherman Antitrust Act. Just as was true of
the Declaration and Constitution, these laws aim to protect the
independence of small business. As Senator Sherman put it,
defending the bill that bears his name, ``It is the right of
every man to work, labor, and produce in any lawful vocation.
This is industrial liberty and lies at the foundation of the
equality of all rights and privileges.''
Buttressed in the 20th century by the Clayton Act, FTC Act,
Glass-Steagall, Robinson-Patman, and other acts of Congress,
this updated system of liberty worked.
In 1980, the United States was home to many giant
industrial corporations--IBM, Boeing, General Electric, General
Motors--that made America the most powerful nation on earth.
Yet, 2 centuries after the founding, most retail, farming,
services, light manufacturing and publishing remained family
enterprises. And this liberty to be one's own boss was now
claimed by every Member of our society no matter the color of
their skin, gender, religion, or sexual orientation.
Third, the consumer welfare ideology has been a catastrophe
for American democracy. In 1981, President Reagan introduced a
new political economic goal. No longer was the need to protect
liberty and democracy. The aim now was to deliver more stuff.
To this end, his administration reinterpreted the laws
Americans had put in place to protect independent business.
They twisted the laws to promote efficiency instead. Until
President Biden, every administration since Reagan has followed
this lead.
The result was social and political revolution. The
expropriation of the businesses of millions of families, the
erection of futile control over the family businesses that
remain. Today, under the rule of Amazon, Google, Facebook,
Uber, millions of Americans most energetic and creative
citizens are forced day after day to borrow from the company
bank, to buy from the company store, to pay tax to the company
treasury, to heed the company's command. In America today,
there is no fair competition. There is no level playing field.
In 1913, President Wilson defined tyranny as, ``the conduct
of our affairs and the shaping of our legislation in the
interest of special bodies of capital and those who organize
their use.'' By that definition, the American people today live
under a tyranny of corporate monopoly, and America's
entrepreneurs are among the first to feel the boot.
This hearing demonstrates that Congress has awakened to the
crisis. We look forward to working with you all to rebuild
American entrepreneurship and American democracy.
Chairwoman VELAZQUEZ. Thank you, Mr. Lynn.
I will begin by recognizing myself for 5 minutes.
Dr. Moss, how do we ensure that small firms can compete in
today's economy given the massive consumer demand for quick and
simple delivery of products and services from large, dominant
firms?
Ms. MOSS. Thank you for the question, Chairwoman.
It is really a central question to public policy
surrounding the promotion of small business and the U.S.
economy. And I would assert, as I do in my testimony and in my
remarks, that a strong system of antitrust enforcement is very,
very important to that.
We have a lot of small business. I talk to small businesses
every day in their calls to the American Antitrust Institute,
their struggles, the restraints that they face, the
intimidation and the harassment they face by larger firms,
including and protecting small business is part of our economy,
not only increases diversity and our supply chains; it
increases their stability and their resiliency.
The COVID-19 pandemic very much is evidence of the failure
of that to have occurred. So strong antitrust enforcement, but
also other policy tools that can support and assist small
business are extremely important.
Chairwoman VELAZQUEZ. Thank you.
Ms. MOSS. To think about and to work in complementary ways.
Chairwoman VELAZQUEZ. Thank you. Amazon holds about 50
percent or more of the U.S. online retail market. Due to
Amazon's market power, are there other firms out there that can
compete with Amazon? How can we create a level playing field
for these other firms?
Ms. MOSS. So I think the question of Amazon and their
ecommerce platform is really central to the debates that we are
having over digital technology. I would take a slightly
different view of Amazon and my hope was that this view would
have been injected far earlier into the public debate about
Amazon. It is not so much about dominance of the online market,
which does contain myriad actors. It is really about dominance
in a very important part of the supply chain which is the
logistics part of the supply chain. So, a monopoly over
picking, packing, sorting, and tracking, if you will, has given
Amazon an ability and an incentive to use its dominance there
to engage in conduct that forecloses small rivals. My hope
would be that private enforcement would step forward to think
about framing cases and that public enforcers would do as well.
Chairwoman VELAZQUEZ. Dr. Moss, can you explain to us how
Amazon's self-preferencing practices have hurt small
businesses?
Ms. MOSS. Sure. So going to the logistics part of the
supply chain, again, the use of the Amazon Prime system
absolutely creates incentives to preference Amazon's affiliated
businesses, their preferred businesses in terms of whether they
show up in the consumers' buy box at the end of a transaction.
Absolutely. Amazon's incentives to replicate successful
products and services on its website are another way for Amazon
to see enhanced incentives to disadvantaged smaller businesses.
This part of the supply chain is a very specific market and
really deserves to be looked at very, very carefully so that
Amazon cannot leverage its monopoly to the disadvantage of
small businesses. Again, that hinges on strong antitrust
enforcement.
Chairwoman VELAZQUEZ. Thank you, Dr. Moss.
We have seen increased levels of concentration across
markets with small and medium-sized businesses sometimes being
subject to discriminatory terms and conditions.
Mr. Lynn, is the Robinson-Patman Act equipped to deal with
the reality of today's economy? Or does Congress need to take
steps to strengthen the law to protect small employers?
Mr. LYNN. Chairwoman Velazquez, that is a very important
question and the answer is no. Right now, the Robinson-Patman
Act is not prepared, is not fit for purpose, for protecting
America's independent businesses as it was originally created.
The problem is that it has been severely eroded by court
decisions over the years. It has also been severely eroded by
sort of a lack of use by the recent administrations.
It is important to understand that there are many other
ways to achieve the same ends, and we need to be using these
other approaches to achieving these same ends, you know, a much
more aggressive use of antidiscrimination law in every aspect,
in every way. But we can, and we should be working to sort of
restore the original purpose of the Robinson-Patman and the
original power of the Robinson-Patman Act.
Chairwoman VELAZQUEZ. Thank you, Mr. Lynn.
My time has expired.
Now I recognize the gentleman, Mr. Luetkemeyer, Ranking
Member, for 5 minutes.
Mr. LUETKEMEYER. Thank you, Madam Chair.
Dr. Holtz-Eakin, in your written testimony you have a
statement that says, ``To diagnose the roots of inflation is to
identify the appropriate policy response.'' That is a pretty
salient comment. If we could identify the roots of the problem,
we can fix the problem because we should be able to find
solutions for that.
So along that line, you know, we had the discussion before
with regards to what makes up the problem of inflation within
this country right now. We have talked about energy before.
Regulations, I would argue. The money supply problem as you
mentioned in your testimony, and also the supply chain/
workforce problem. I think that is the four biggest ones. I
would assume you agree with that, or is there another one with
that or are those the four biggies?
Mr. HOLTZ-EAKIN. The excessive stimulus early in 2021 as
well.
Mr. LUETKEMEYER. Okay. Well, I thought that was money
supply. That is where I would throw that underneath there. Too
much money in the system. Okay.
I would like for you to quantify that if you would. We have
talked about this before and you thought energy could make up
as much as 40 to 50 percent of the inflation that is being
caused today. Could you break down the percentage you think of
inflation is caused by energy, regulations, access to money
supply and supply chain workforce problems? I realize it is a
ballpark but it would give us an idea of the immensity of the
problem in each one of these categories.
Mr. HOLTZ-EAKIN. So there is a crude way to do it which is
in my testimony, is to imagine that the globe suffers from
common energy problems, common pandemic-induced workforce
problems, common supply chain interruptions. And so, take
European consumer price inflation. It goes up at a percentage
point a quarter through 2021. That is about 0 to 4 percent. The
U.S., the moment the American Rescue Plan is passed in the face
of also very, very accommodative monetary policy, gets not a
percentage point increase but three. Almost three. Three times
bigger. So that is the excessive money supply stimulus part of
it compared to the rest.
And then I would say you have roughly equal amounts in the
workforce and energy components. So that is going to give you
something that looks like 2 percentage points or so of
inflation. And there is the baseline regulatory inflexibility
which comes with the accumulation of regulatory costs. So, I
think you really can do some crude breakdowns. But the real
issue is to go in the other direction. Stop creating
inflationary pressures. So do not do any more stimulus. Do not
do any more monetary accommodation. Be careful with the
regulatory burden. And allow greater supply of energy. That is
the best that Congress can think about.
Mr. LUETKEMEYER. Okay. Thank you.
In your testimony and written testimony, you also talk
about some different, like the Administrative Procedures Act,
the Regulatory Flexibility Act, things that Congress should be
looking at to minimize the impact on small businesses, as well
as being able to help small businesses as we watchdog some of
the stuff that we are doing. So as a leader on the Republican
side here of the Small Business Committee, this got my
attention because this is something we at Congress should be
looking at and doing, and I really appreciate you highlighting
that. So, I want to kind of go through that a little bit but I
am running out of time. Hopefully, my colleagues will follow up
on this.
The one I want to start out with is Regulatory Flexibility
Act, because that technically is what, you know, the agency is
supposed to look at the rules and regulations and their impact
on small business and it does not seem like they are doing that
or we are not doing it. Or is it too weak a law? Do we need to
enforce it? Do we need to do something different? What would
you suggest we do to make that particular act actually work?
Mr. HOLTZ-EAKIN. So first, let me just stipulate, because
it is often misunderstood. I am not opposed to all regulation.
There is much necessary regulation. But it should be done as
well as possible. It should be done best practice, least cost.
And the Regulatory Flexibility Act is an attempt to keep the
costs from being too onerous, particularly on small businesses.
It is not working. So, you can try other methods.
The Trump administration essentially stopped the growth of
regulatory costs by imposing regulatory budgets on the
agencies. They gave them a number. Said you cannot do any more
than that. The numbers were all zero and negative and had a
very big impact. So, Congress could statutorily impose
constraints on the regulatory state and say, okay, we need
these regulations. Let's find savings elsewhere to offset those
costs, keep the burden low. That way you are constantly
cleaning out the regulatory overhead. That is virtuous. You
have an attempt to do regs at least cost. There is no
particular incentive to do regs at least cost now. And you will
have less interference in the economy and still get the
regulatory outcomes that you want. Congress can have a strong
statutory requirement that they do that.
Mr. LUETKEMEYER. My time is just about up here. I would
just like to have a general comment here with regards to some
of the other folks testifying this morning were talking about
basically having a level playing field for small businesses to
be able to compete on. That the big guys have got an advantage.
So, I guess the question becomes, and I hope we have some
follow-up with regards to my colleagues here this morning, are
the rules and regulations skewed for the big guys? Do we need
to change that? Have they got too much? Not enough? Are the
rules and regulations the cost of compliance as Dr. Holtz-Eakin
has talked about here in his testimony of $200 billion in 1
year, is that so oppressive that it is taking away the ability
of small businesses to compete? I think those are things we
need to continue to discuss.
And with that, Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Kansas, Chairwoman of
the Subcommittee on Economic Growth, Tax, and Capital Access,
Ms. Davids, for 5 minutes.
Ms. DAVIDS. Good morning. Well, first of all, thank you,
Chairwoman Velazquez and Ranking Member Luetkemeyer for holding
the hearing that we are having today.
I represent the Kansas Third District and entrepreneurship
is based into the DNA of our community. And we are definitely
proud of our small business community. I think what we are
hearing now demonstrates that it is undeniable that the
economic environment for small businesses has gotten more
difficult. And that was exacerbated by the pandemic.
Small business's share of the GDP has been falling steadily
since the 1980s and we have certainly seen increased rates of
consolidation and concentration across various industries. And
with small businesses being an essential piece of our economy,
I am glad that we are getting the time to discuss how our
current antitrust laws need to be operating to ensure the
competitiveness of our economy.
I was hoping to ask my first question here to Dr. Moss. We
have seen this concentration in something like three-quarters
of the U.S. industries over the past 20 years, so I was hoping
you could take a moment to explain what that means both for
consumers and then for the small businesses that are trying to
get into these various industries.
Ms. MOSS. Thank you for the question, Congresswoman. I am
very happy to answer that.
There have been many studies of rising concentration at the
sectoral level, at the industry level. The challenge for
antitrust enforcement is to do the research, the empirical
research that shows that increases in concentration have
resulted in what we call antitrust markets, which are much
smaller and narrower for the purposes of evaluating antitrust
claims. More generally speaking, we have seen increases in
concentration across the board. In airlines, we now have a
merger on deck that will increase concentration even more. We
have seen it in healthcare, pharmacy benefit managers. We have
seen it in hospital systems. We see it in food and agriculture.
We have essentially cartels of packers and chicken growers and
processors. I am sorry, not chicken growers but chicken
processors. That is a real problem. These are all very
consumer-facing products and services. So, consumers see it
through higher prices, lower quality.
But in these bottleneck supply chains where we see the
midstream portion really dominated by just a few firms, market
power is exercised going up the supply chain. So, they depress
prices to producers and a lot of these producers are small
businesses. So, they are squeezed on the top end by getting
lower prices for their products. And consumers are squeezed on
the back end by paying higher prices. These supply chains are
very unstable and they lack diversity that small business is
really important historically has served a very important
function in promoting. That must be restored through some
combination of policy tools to protect this really vital
element of our economy.
Ms. DAVIDS. Thank you, Dr. Moss.
Can you, and maybe this is not a good way to ask this, but
can you give us like a sense of the industries? You kind of did
this a little bit with airlines and then a couple of other
things, but can you give us a sense of the maybe most impactful
concentrations that we have seen?
Ms. MOSS. Yeah. So, I mean, there is a number of examples
we could cite to. Let's go to medical supplies and medical
devices, for example. Very famous antitrust case, Becton
Dickinson--I am sorry, Retractable Technologies, Inc. v. Becton
Dickinson. Small market player. Came to market with a really
superior technology, a retractable syringe, up against a
dominant player. And really, in litigation for years. Forced
out of the market. Forced to assume a much smaller market share
through an innovative product than they would have if there had
been more competition in that market. That has a direct effect
on small business, and erecting barriers to entry and
incentives for other small businesses to form. We are also
seeing it, as I said, in other parts of the healthcare supply
chain. Take agricultural biotechnology. There are a lot of
digital farming startups that are out there. Digital farming is
the wave of the future in agriculture. Again, very consumer
facing. Unfortunately, a lot of this stuff flies below the
antitrust radar, and part of it is a result of this fear factor
that smaller firms really are afraid to step forward to
complain to enforcers and so the problem goes unnoticed.
Ms. DAVIDS. Thank you for that.
I do have a bill, The Supplies Act that might help us with
some of that and I would love to talk to you more about that
offline.
Thank you, Madam Chair, and I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the vice Ranking Member of the Committee,
Mr. Williams from Texas for 5 minutes.
Mr. WILLIAMS. Thank you, Madam Chairwoman and Ranking
Member Luetkemeyer.
Main street businesses are the backbone of our communities,
and I am proud to be a main street small business owner for 51
years. And I can tell you this, after hearing some of this
testimony, profits are good. The government does not create
competition; the private sector does. That is just a basic
thing that we have. And from rural to urban America, small
businesses provide critical competition are an essential source
of jobs as we have already heard. Unfortunately, small business
owners continue to be burdened by excessive federal regulations
and that is really your competition is the federal government,
and often lack the resources to comply with the latest rules.
And big government is not the answer; big government is the
problem.
So, Dr. Holtz-Eakin, the American Action Forum recently
reported that the last year alone, the Biden administration
addressed the small business owners nearly $201 billion in new
regulatory costs and I have also seen numbers of, what, it is
130 some odd million manhours to comply with that. And so,
while that figure is astonishing, it further draws attention to
how main street American could not possibly be equipped or
staffed to closely track these changes to regulatory
compliance.
So, my question is, can you compare these high regulatory
costs for any other recent time period in our history? And how
are small business owners, like me, of convenience stores or
gas stations, supposed to be able to handle compliance costs
that come with these more heavy burdened regulations?
Mr. HOLTZ-EAKIN. So thank you for the question. First, I
want to just say that these are not our numbers. We keep track
of all the rulemaking in the federal government and the
agencies report their estimate of the costs it will take the
private sector to comply with the rulemaking and that is the
burden cost and the hours of paperwork that are generated by
that rulemaking. We simply keep track of them by agency in
total, by legislation. And the $200 billion in burden costs is
the largest single number for the first year of any
administration going back to 2005, which is where our data
begin. As I mentioned in my opening remarks, the Obama
administration was an extraordinary explosion of regulatory
costs, over $100 billion a year for 8 straight years. This
would exceed that. And I have deep concerns that a big part of
the sluggish recovery from the Great Recession and the reduced
entry of new firms in that period was due to the regulatory
burdens that we were seeing coming out of Washington.
Mr. WILLIAMS. Well, and we know it costs jobs. Small
businesses cannot take that so they cut jobs. And banks are a
good example hiring more compliance officers and loan officers
filters down to small business. So, when we talk to small
business owners in Texas where I am from, they are most
concerned about how they will have to alter their business
operations to manage soaring prices and compensate for
inflation that has reached record highs since the early 1980s.
And the National Federation of Independent Business reported
that more than 60 percent of small business owners across
America were forced to raise prices to keep up with the Biden
administration's policies that are driving inflation and supply
chain. And there are a lot of businesses quite frankly as we
all know cannot raise their prices. They are stuck even more.
So, all while the Biden administration Democrats continue to
dismiss this inflation is transitory, one of the famous
statements of all time, turning their back on any real
solutions to right the ship. So again, my question is, as an
economist, you know the negative impacts inflation has on small
businesses. What steps should the Biden administration and
Congress be taking to get this growing inflation under control?
Mr. HOLTZ-EAKIN. Well, step number one is no more harm. And
so no more stimulus-style legislation. In particular, the Build
Back Better Act had all the structure of upfront spending and
backloaded pay-fors that a stimulus bill would have so that
would be a misstep at this point. So do not do that. Number
two, do not complicate the mission of the Federal Reserve. It
has mandates for full employment and price stability. That is a
hard enough job in this environment. They do not need mandates
for inequality or for climate change or other things that the
administration might desire but that should not be their job.
Number three, add no new costs. So, the regulatory burden is
the thing most directly controllable. Keep those regulatory
burdens to a minimum certainly, this year and next year when
inflation will continue to persist. I think there is little
doubt about that. And I do not know how much of a quick U-turn
we can do on energy but global energy prices are going to be
stressed for the foreseeable future due to the recovery around
the globe but now the invasion of Ukraine by Russia. So those
are all very important aspects of the inflation problem. Right
now, commodity inflation is running at about 20 percent. It
will be higher going forward. And that is a supply chain
pressure that is going to go straight through to consumer
prices. It will not diminish overnight.
Mr. WILLIAMS. And as a small business owner myself, one
that deals in inventory is auto industry, it is not going to
change in the next several years. Bottom line is maybe we need
to cut taxes again.
Thank you for being here today, and I yield my time back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from Illinois, Ms. Newman,
for 5 minutes.
Ms. NEWMAN. Thank you, Madam Chair, and thank you, Ranking
Member for having this great meeting and hearing from our
guests. Thank you to our guests this morning.
I, first, Madam Chair, I am going to, on behalf of the
Authors Guild and Society of Composers and Lyricists, I would
like to submit their following testimony for the record. One of
the things that they are looking to find solutions for is
leveling the playing field through independent artists and
entertainment companies. So, these independent workers in the
creative economy often go unseen as larger companies monetize
their work. So please accept testimony on their behalf.
Chairwoman VELAZQUEZ. Without objection, so ordered.
Ms. NEWMAN. Thank you. And then I have a couple of
questions. I will go to Dr. Holtz-Eakin first.
So, I am just curious, can you share the formula by which
you use the 2 percent of the inflation attribution, how you
cane to that regarding the American Rescue Plan?
Mr. HOLTZ-EAKIN. My estimate, based on looking at the
difference between European consumer price inflation and U.S.
consumer price inflation over the course of 2020-2021, sorry.
From January of 2021 to this January, consumer price inflation
went from 1.4 percent to 7.5 percent in the United States. It
went from 0 to 4 in Europe. So, it is about half.
Ms. NEWMAN. Okay. I am not sure I agree with it but thank
you for explaining.
So, my next question is for Dr. Moss. We heard from Dr.
Holtz-Eakin that reduction in interest rate hikes are a good
way to curb inflation. I am just curious to get another thought
on that. As an economist, can you respond to the impact these
strategies might have on small firms, small businesses, and
consumers? Thank you.
Ms. MOSS. Thank you for the question. Certainly,
inflationary pressures are topline news at this stage in the
pandemic. I think treating inflation deserves very careful
attention. There are numerous policy tools to deal with
inflation. There is monetary policy. There is fiscal policy.
Exchange rates, reserve requirements at the Fed. There is a big
toolkit involved here.
As far as small business is concerned, certainly higher
interest rates would be directly felt by small business as they
seek to take loans, to expand, or to build out their
businesses. Debt requirements if they are to be used as a tool
would also affect small business. So, when you come up with
sort of a macroeconomic policy approach to dealing with
inflation, I think you have to get to the genuine sources of
the problem. But given the importance of small business, I
think it is really important to figure out how small businesses
are going to be affected by various types of policy tools and
what they need most at this stage in this contraction and
coming out of the pandemic, which will have lasting effects for
many years to come. It will not be over at the end of the
pandemic itself.
Ms. NEWMAN. Thank you, Dr. Moss. I have one more question
to follow up for you. So, the Biden administration has taken a
lot of really strong steps to increase competition. Can you
describe the benefits these steps will have in lowering prices
and creating a level playing field for small business?
Ms. MOSS. Sure. So, the executive order that the Biden
administration put out really takes a whole of government
approach to looking at competition problems. It recognizes the
very different tools and prongs of competition policy more
generally and that includes sector regulation. It includes
labor law, intellectual property issues, consumer protection
issues. And it recognizes antitrust enforcement. Very much a
toolkit kind of approach. And to increase coordination and
cooperation across federal agencies as they attempt to really
build a strong competition policy.
This is fundamentally the right approach, I believe.
Implementing it, of course, the devil is in the details. We
have seen several initiatives come out. USDA, for example, is
doing quite a bit of work on that. Department of Transportation
on airline alliances and the like. So, increasing coordination
and cooperation to develop coherent competition policy, but
most important, having these tools work together. Antitrust and
sector regulation, for example, should work together in a
complementary way to bootstrap each other, not to create
conflicts where small business or the competitive process is
sort of in the cross-hairs of tensions.
Ms. NEWMAN. Well, thank you for the answer. I certainly
agree with the complementary and supplementary working together
idea very much so. So, thank you, and I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Minnesota, Mr. Stauber,
for 5 minutes.
Mr. STAUBER. Thank you, Madam Chair, and Ranking Member
Luetkemeyer, for holding this. And thank you to all the
witnesses. I appreciate that.
Dr. Holtz-Eakin, you had just mentioned that the Obama
administration brought in $100 billion of punishing regulatory
burdens on small businesses for 8 straight years. Is that what
I heard you say?
Mr. HOLTZ-EAKIN. That is correct.
Mr. STAUBER. And in your testimony, in the first year, in
the very first year of this administration, in a pandemic, this
administration brought $201 billion of punishing regulations on
small business; is that what you said?
Mr. HOLTZ-EAKIN. That is correct.
Mr. STAUBER. You know, I think we need more people that
have signed the front of the checks in small businesses.
Mr. Williams, I have only been a small business owner for
31 years, so you have got 20 years on me. This is unbelievable.
You know, my colleagues on the other side of the isle, they
said they want to break up big companies and advocate for small
businesses. Two hundred billion dollars in year 1 of this
administration.
We always talk about small businesses are the engine of our
economy. They are the mom and pop shops that struggle every
day. And to hear some of the witnesses talk about, well, these
regulations are good. They do this or do that. I think
government ought to get out of the way and let small businesses
flourish under those prudent regulations that you talked about,
Doctor. Reasonable prudent, not redundant burdensome that
punishes those small business owners that just want to live the
American dream and employ people. This is really frustrating
for me to hear this.
To that end, Dr. Holtz-Eakin, in the America Competes Act,
how are those provisions? How are they furthering harming small
businesses? Can you give us a couple of examples?
Mr. HOLTZ-EAKIN. The America Competes is in many ways,
well, it is, industrial policy. The stated intent is to improve
the U.S. competitive position, especially versus China. And
there are places where there are broad public goods and rules
and basic research and innovation that makes sense. But there
is some $50 billion in there to build semiconductor plants
which the private sector can build semiconductor plants, and if
they are not in China, they do not have to be in the U.S. They
have to be somewhere so they have diversification of the supply
chain. I have no idea why they would move money that was in the
Senate bill targeted towards the National Science Foundation
and give it to the Department of Commerce to fix supply chains.
The Department of Commerce does not have a supply chain. Every
American business has their own supply chain. They have every
incentive to fix it. And so, I have no idea what that will be
other than tilting the playing field to those who have access
to the Department of Commerce to get a subsidy. And so, I am
deeply concerned about those kinds of provisions.
Mr. STAUBER. Do those kinds of provisions help or harm
small businesses?
Mr. HOLTZ-EAKIN. They are not helpful. Small businesses may
not yet have started and they are going to now have to enter
against someone who has got some help from the Department of
Commerce. It is not leveling the playing field.
Mr. STAUBER. So that is getting involved in competing?
Mr. HOLTZ-EAKIN. Yeah.
Mr. STAUBER. You know, to my colleagues on both sides of
the aisle on this Committee, we have a responsibility to make
sure small businesses across America succeed. My guess is if
this keeps up, we are not only going to have $200 billion of
punishing burdensome regulations from this administration in
year 1; the same thing is going to happen in year 2. How can we
do this to our small businesses? They are the engine of our
economy. It is the American dream.
When my brothers and I opened up our small sporting goods
store in June 1990 and dished out what we had in the bank to
open up a small business, and to have this type of regulation,
we have an opportunity, Madam Chair, Ranking Member
Luetkemeyer, on the Small Business Committee, to make sure that
our small businesses flourish in this country. We need these
regulations, the reduction in the regulations, not adding $200
billion a year. This is very frustrating.
And this is a challenge for this Committee. Madam Chair,
Ranking Member Luetkemeyer, this is a challenge to stop those
burdensome regulations.
Madam Chair, I yield back.
Chairwoman VELAZQUEZ. The gentleman's time is expired. I
invite the gentleman to support legislation when it comes to
cutting taxes where small businesses are not an afterthought
like it happened before.
Now we recognize the gentleman from Louisiana, Mr. Carter
for 5 minutes.
Mr. CARTER. Madam Chair and Ranking Member, thank you very
much for the opportunity.
My question is for Mr. Lynn. Mr. Lynn, we know that the
president signed an executive order calling for a government-
wide approach to increased competition for small businesses.
Can you share with me what that really means? Because as you
can hear the frustration from some of our Members, we continue
to hear the pain of our small businesses that we know are the
backbone of our economy. Yet, we continue to see small
businesses die on the vine, if you will, because they do not
have access to resources or because they oftentimes as subs
have to wait so long to be paid by a majority firm. These are
things that we have talked about for many years and it is
frustrating that here we are in 2022 and we continue to hear
the same kind of concerns from small businesses that we all
acknowledge are critically important to our economy. In plain
language, tell me, what are we doing and what can we do?
Mr. LYNN. That is a great question, Mr. Congressman. The
Biden administration has taken a radically new approach to
competition policy compared to any presidency over the last 40
years. This includes two things. It includes putting much
stronger enforcers into the Federal Trade Commission and into
the Department of Justice Antitrust Division. And it includes,
as you mentioned, taking this whole government approach to
competition policy. Together what we see is a radical change in
how we are going to enforce the law through the agencies and it
is also an approach in which we are going to use every part of
the administration to achieve specific ends. Every business
person across America right now, every small business, every
independent business, including those who own car dealerships
should appreciate what the Biden administration is doing to
protect you from predatory actors such as Google, Facebook, and
Amazon. And also, to create a level playing field in which your
ability to sort of use your own tools, your own skills, your
own minds to provide better services and goods will be
rewarded.
Mr. CARTER. But with all due respect, a part of the problem
is small businesses often do not have the requisite tools. They
do not always have the requisite skills. Small businesses often
need a little bit more help to level the playing field and
create opportunity. What are we doing? What can we do to level
that playing field? And with no disrespect to the car
dealerships, I would like to dig a little bit deeper and talk
about the truly small businesses. Those who do not have
consultants, lawyers, and accountants to help them wade through
regulations. What are we doing for the mom-pop, the small drug
store, the small sandwich shop or restaurant or barber or
beauty shop, people that are struggling but they employ people
and they collect sales taxes for police and fire but they need
help?
Mr. LYNN. Yeah, that is a great question as well.
Traditionally, in the United States, we have provided, one, a
fair field so that people can compete without predation. But we
have also made sure that people have the capital they need.
That they have the skills that they need. This is a role that
government has fulfilled for 200 years in this country. This is
not something new. It is not something that The New Deal
created. It goes back to the founding of this country. And when
people talk about the idea that people create competition,
yeah, they do. But what they do, they create competition by
using government to make it possible for them to succeed. And
so, as we go forward, we should be looking at new ways to
provide the kinds of funding that small businesses, truly small
businesses, the kind of credit they need to succeed.
Mr. CARTER. I am sorry to cut you off. I have got about 45
seconds and I want you to, if you could, zero in on access to
capital. Because many small businesses fail because they do not
have enough capital to sustain themselves when they are
starting a new business. Small businesses fail because they do
not have that technical expertise and capital. Is there a
program and how are you addressing those issues for small
businesses?
Mr. LYNN. It has been a disaster over the last 40 years.
This country used to be set up to provide capital to anyone who
really needed it. We had community banks. We regulated our
commercial banks. We ensured that if you needed capital, you
could find it someplace and get it at a reasonable price. You
did not have to pay predatory prices. So, we have a number of
ways in which we can actually deal with this right now but we
have got to get studying what we did for 200 years in this
country and not what we did for the last 40 years because that
has been choking off credit to our needy small businesses.
Chairwoman VELAZQUEZ. The gentleman's time has expired.
Now we recognize----
Mr. CARTER. Madam Chair, thank you. I yield.
Chairwoman VELAZQUEZ. We recognize the gentleman from
Pennsylvania, Ranking Member of the Subcommittee on Economic
Growth, Tax, and Capital Access, Mr. Meuser for 5 minutes.
Mr. MEUSER. Thank you, Madam Chair. Thank you, too, Ranking
Member Luetkemeyer.
It is certainly a somber day here in the Small Business
Committee on a number of fronts, but seeing our friend's
nameplate and him not behind it is very, very sad. Jim told it
like it was. Telling the truth was always the only option
because our country's national security and economy is truly at
stake. So, let's get into this.
In my district, you know, all this idea that the biggest
problem small business has is big business, in my district,
with the exception of big tech, and I was in business for 25
years and I served as revenue secretary for the Commonwealth
for 4 years, so I saw all the taxable incomes and who was doing
what and so forth. With the exception of big tech these days
and online retailers, and definitely Amazon, big government is
not the problem. Or excuse me, big business is not the problem
for small business. It is big government.
So, let's unpack this a little bit. Let's talk about it.
Dr. Holtz-Eakin, so in the BBB, our friends who passed it,
thought it was a wonderful idea to tack on a 3.8 percent surtax
on investment income for pass-throughs. Was that good for small
business?
Mr. HOLTZ-EAKIN. No. And before I expand on that I will
just point out that if you look at the NFIB Monthly Survey of
Small Businesses, that never is competing with large business
mentioned as their biggest problem. That is mentioned by 1
percent of people.
Mr. MEUSER. Precisely. Precisely. And my me search reflects
your research throughout all of my district and I visit my
small businesses regularly.
Let's try to do a little bit of----
Mr. HOLTZ-EAKIN. So the surtax----
Mr. MEUSER. Go ahead.
Mr. HOLTZ-EAKIN.--just remember that more than half of all
business income is taxed on individual income tax returns. It
is not taxed on C corporations.
Mr. MEUSER. Precisely.
Mr. HOLTZ-EAKIN. So that is where you are going to hit
small businesses.
Mr. MEUSER. Right. And under 400K in income. It is hurting
their taxable income for a small business and then some.
Would making the Trump tax cuts permanent be good for small
business?
Mr. HOLTZ-EAKIN. Yes. The uncertainty is a bad idea.
Mr. MEUSER. Predictability, keeping it where it is, they
know where they are going to be the following year. Because as
we well know, a tax is nothing more than added cost. And if we
think it is a great idea to make cost of our businesses, large
and small, higher than it is worldwide, well, then you know,
somebody is going to have to dispute gravity for me because it
simply does not work that way. And, of course, profits lead to
more investment in your company, lead to higher taxable
incomes, which in fact, lead to higher revenues in the coffers
of our Treasury.
So are heavier regulations good for small business?
Mr. HOLTZ-EAKIN. No.
Mr. MEUSER. Dr. Holtz-Eakin?
Mr. HOLTZ-EAKIN. No. I mean, there are----
Mr. MEUSER. Two hundred 10 billion dollars added this year,
that is not something that small business is benefitting by?
Mr. HOLTZ-EAKIN. So there are benefits to regulation. They
had better be bigger than $210 billion. So, I have some
questions about that.
Mr. MEUSER. Very often government's intent is a far cry
from what the end results are because it is ridiculous to think
that the regulations of 14 months ago somehow are so much
better today at a cost of $210 billion that are helping
somebody, it is not helping anyone but a bunch of bureaucrats
work on forcing it.
So is government spending, heavy government spending,
trillions of dollars in government spending a cause or an
inhibitor of inflation?
Mr. HOLTZ-EAKIN. It is one of the causes of the U.S.----
Mr. MEUSER. One of the causes of inflation.
Is inflation good for small business?
Mr. HOLTZ-EAKIN. No.
Mr. MEUSER. No. Inflation is not good for small business.
It robs small business and it leads to higher interest rates.
Are higher interest rates good for small business?
Mr. HOLTZ-EAKIN. No.
Mr. MEUSER. Okay. We are the Small Business Committee. We
are supposed to be advocates for small business. These policies
are not exactly advocating for small business, would you not
agree?
Mr. HOLTZ-EAKIN. They are not good for the business
community as a whole.
Mr. MEUSER. No. So how about workforce? Is government
competing, providing benefits to workforce and making workforce
less available? Is that good for small business?
Mr. HOLTZ-EAKIN. We have a very big workforce problem in
the United States right now and it is in part due to the
policies of the CARES Act and some successors. It is also due
to a failure to have an effective public health mission against
the pandemic which has harmed labor supply in both the number
of people and how much they can work.
Mr. MEUSER. Big government meddling. No question.
Is higher gasoline prices good for small business?
Mr. HOLTZ-EAKIN. No.
Mr. MEUSER. Spikes in gasoline prices is an assault on our
domestic energy industry, which in my district contains many,
many small businesses, suppliers, providers. Is that assault
that is taking place on our domestic energy, let alone the
national security issues, is that good for small business?
Mr. HOLTZ-EAKIN. That was one of the success stories of the
post-Great Recession recovery was----
Mr. MEUSER. Absolutely. Particularly in Pennsylvania.
Mr. HOLTZ-EAKIN. Yeah.
Mr. MEUSER. So I think we should let small business be the
most competitive in the world and let large business be
competitive as well and focus on the things that we actually
can control which are government regulations and taxation.
I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentleman from New York, Mr.
Garbarino, for 5 minutes.
Mr. GARBARINO. Thank you, Madam Chair.
I have a couple of questions for Dr. Holtz-Eakin.
You just heard a couple of my colleagues mention $210
billion, $200 billion in regulatory costs. But I do not think
people understand, you know, what that means in only a year.
Can you explain? Can you just go a little further into, you
know, we have seen $210 billion in additional regulatory costs.
Can you talk about what we have seen in previous
administrations and why that $210 billion is so big?
Mr. HOLTZ-EAKIN. So what we do is we keep track of all the
regulatory costs as reported by the agencies themselves, and we
simply total them by agency. And in this case, for the federal
government as a whole. We do not have compete records of the
Bush administration, so I cannot comment on that. The Obama
administration, as I mentioned, had about $895 billion of
regulatory costs over the 8 years of its time in office. The
Trump adminsitratino had, I forget the exact number, a modest
double-digit increase, under $20 billion over its 4 years. And
now the Biden administration, we have 1 year of data. It is
$200 billion in the first year.
Mr. GARBARINO. What was the Obama number again over 8
years?
Mr. HOLTZ-EAKIN. Eight hundred ninety-five billion dollars
in new costs.
Mr. GARBARINO. So $895 billion in new costs over 8 years.
Mr. HOLTZ-EAKIN. Yes.
Mr. GARBARINO. That is a little over 100. Twenty billion
over 4 years for President Trump.
Mr. HOLTZ-EAKIN. Yes.
Mr. GARBARINO. And we are seeing $200 billion in 1 year
alone under this current administration in regulatory costs.
Prior to coming to Congress, I was a private practice attorney
in New York which had high regulatory costs but my colleagues
from New York are on this call also so they can also comment on
the regulations coming out of New York. And we saw businesses
leaving the state in droves because of these regulatory costs.
I just know, I mean, can you talk about what these $200 billion
in 1 year, what that will do to small businesses?
Mr. HOLTZ-EAKIN. We see some examples historically of what
high regulatory costs do. So, for example, the Sarbanes-Oxley
Law was intended to control big businesses and their accounting
practices in the aftermath of the Enron and WorldCom scandals.
That was a legitimate concern and public purpose. But it is
extremely costly to comply with Sarbanes-Oxley. And as a
result, we have seen the number of initial public offerings cut
in half since the 2000s. That means that small businesses
starting up are less likely to be able to pay off their venture
investors by going public. They are going to have to be bought
by somebody or have some other method of getting the money. So
that hurts small business startups. There is no question about
it. And it is from the regulatory costs of compliance with a
well-intended public law.
Mr. GARBARINO. I appreciate those answers, Doctor.
When I talk to small businesses in my district, it is not
just about high regulations, more regulations, and how tough it
is to do business. But I am really starting to hear a lot about
inflation. And my question specifically for you is, are the
inflation levels that we are seeing here in the U.S. unique or
is this something that is being experienced all over the world?
Mr. HOLTZ-EAKIN. There has been a rise in inflation
globally but the levels in the United States and the increase
in 2021 of inflation is unique to the United States. So, the
headline number is 7.5 percent for consumer price inflation. If
you look at the bundle of food, energy, and shelter, which is
50 percent of the typical family's budget, that went from 1.4
to 8.1 percent during the course of 2021. So, it is the
sharpest rise on the globe.
Mr. GARBARINO. So what does that do to us as a country in
competitiveness?
Mr. HOLTZ-EAKIN. Inflation is bad news from every
dimension. And this will hurt our ability to compete with other
countries.
Mr. GARBARINO. Two hundred and 10 billion dollars in
regulation costs. Highest inflation compared to other countries
in 1 year. I think we are definitely going the wrong way,
especially in how we can help small business.
I appreciate your testimony today, your answering the
questions. Thank you very much for being here.
And Chairwoman, I yield back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Now we recognize the gentlelady from California, Ranking
Member of the Subcommittee on Innovation, Entrepreneurship, and
Workforce Development, Ms. Young Kim, for 5 minutes.
Ms. YOUNG KIM. Can you hear me? All right.
So, I want to thank our Chair and Ranking Member. And I
really want to thank you so much for opening our hearing today
in honor of our colleague, Congressman Jim Hagedorn. I thought
that was very special to give a special tribute for him. I also
want to thank our witnesses for joining us.
I think we can all agree that we all want fair competition
and a level playing field for our small businesses which are
the backbone of our economy.
The reality is that most small businesses in my district
are not raising the antitrust laws being discussed here. They
are complaining about the labor shortages, higher prices, and
increasing red tape to establish and expand their small
businesses. While consolidation of businesses can destruct
markets in certain industries, the Committee should be more
focused on how the federal government can negatively impact
competition and small business success through more
regulations, higher taxes, and ill-timed fiscal expansionary
policies.
So let me ask this question to Mr. Holtz-Eakin. On February
10, the Department of Labor reported that the CPI registered a
40-year high of 7.5 percent when measured year over year. So,
can you describe how legislation that increases spending like
the American Rescue Plan has contributed to higher costs for
small businesses and families?
Mr. HOLTZ-EAKIN. Certainly. What we saw was an economy that
in the first quarter of 2021 grew at 6.5 percent. That was how
fast it was growing when the American Rescue Plan was passed.
As you know, trillions of dollars were sent out in checks to
state and local governments and other government spending. That
produced for goods and services is broadly defined. And in the
classic case of too much money chasing too few goods, we have
seen prices rise beginning then and throughout 2021. This got
exacerbated by some worldwide conditions, a pandemic. Also,
worldwide increases in commodity prices and energy prices so
that we now have producer price inflation that is running about
10 percent that leads to even further consumer price inflation
in the future.
Ms. YOUNG KIM. Do you think we lack more coordination in
our fiscal and monetary policies?
Mr. HOLTZ-EAKIN. That was an example of extremely loose
fiscal and monetary policies simultaneously. Those generally
produce more demand. Demand was not the problem in the
pandemic. The problem was the virus and the inability of people
to go out and conduct their economic affairs. Income rose
throughout the pandemic. Wealth rose throughout the pandemic.
There was no need for such excessive stimulus to demand which
was already well in place.
Ms. YOUNG KIM. Thank you.
You know, we have discussed the decline of entrepreneurship
in the last several decades. And in your written testimony, you
stated between 1975 and 2011, an average of 183 new banks were
chartered annually. However, between 2012 and 2019, that number
dropped to just four. Only four banks were chartered in 7
years. So clearly, regulations are choking capital and credit
access for entrepreneurs with less banks being chartered. Can
you elaborate on how regulatory barriers are curtaining access
to capital for small businesses and entrepreneurs?
Mr. HOLTZ-EAKIN. I think this example almost speaks for
itself. The best discipline you can have for large banks that
fail to serve different aspects of communities of color or
geographic areas is to have new entrants who are willing to do
that business to make money. But, the regulatory apparatus that
came with Dodd-Frank is extremely expensive. Hard for a new
bank to set up and comply. And we have seen very little entry
as a result. So, we are not getting the discipline that comes
from new entrants providing innovative services and products to
underserved markets. And that is the most consistent route to
success in the U.S.
Ms. YOUNG KIM. In the remaining time, I want to ask you for
your opinion. What are the long-term repercussions for our
economy for families and small businesses if the inflation
continues to outpace nominal wages and income?
Mr. HOLTZ-EAKIN. We have seen long periods of inflation in
the past in the United States. In the late 1960s, the
government ran the economy very, very hot for 24 straight
quarters and we got sustained high inflation in the 1970s and
into the early 1980s. It was taken out of the economy only by a
deep and very painful recession. And so, what you see in that
period is sustained high inflation, sustained high
unemployment, poor productivity growth, a failure to grow
adequately as a nation, standards of living not rising. And the
``solution'' being a deep recession that harms everyone in
America. That is not a future we want.
Chairwoman VELAZQUEZ. Time has expired.
Now we recognize the gentlelady from Texas, Ms. Van Duyne,
for 5 minutes.
Ms. VAN DUYNE. Thank you very much, Chairwoman Velazquez
and Ranking Member Luetkemeyer.
If the last 2 years have taught us anything through a
global pandemic, supply chain troubles, and a rough labor
market, our small businesses are the first to feel the dire
consequences of economic difficulty. Yet, as large companies
have tapped into their vast resources to ease supply chain
issues and quickly have raised prices to counter high labor
costs, our smallest employers do not have those options. As I
have said many times before, our entrepreneurs do not want more
handouts from the federal government. What they want is a fair
opportunity to start and grow their businesses without
government interference, something this administration has
failed to provide.
Recently, the Small Business Administrator joined me for a
roundtable with small business owners from across the district
and they all repeatedly brought up the same issue. Their
margins are being destroyed by the skyrocketing energy costs
directly caused by this administration's push to rely on
foreign oil supplies, even amidst a global conflict. There is
no doubt that our small businesses are continuing to struggle
to compete with big companies. We need to stop the frivolous
spending and antigrowth policies created by this
administration.
I appreciate all the witnesses being with us today and I
apologize. You have been under the wire a lot today. You have
answered the majority of questions. The first time that you and
I met I was really impressed when I asked the question about
regulatory reform, regulations, the cost of regulations for all
of us, but especially for small businesses. You gave me some
very direct answers and solutions to those questions. Can you
kind of explain what you explained to me at that time?
Mr. HOLTZ-EAKIN. Certainly. It is certainly within the
purview of the Congress to place more constraints on the
regulatory state in the rulemaking activities in every agency.
The Regulatory Flexibility Act was intended to make sure that
unnecessary regulations and excessively burdensome regulations
went away. That does not happen. There is no genuine lookback
to answer the question, if this regulation was once a good
idea, is it still a good idea? So, you can do that. You can----
Ms. VAN DUYNE. Would you do that by like setting like a
sunset provision on regulations?
Mr. HOLTZ-EAKIN. HHS did a preliminary rulemaking on a
sunset where everyone of its own rules had to be examined. And
if it was deemed to be unnecessary or not working it was going
to go away. That just got repealed by the Biden administration.
That is the only attempt to do that that I have seen in recent
history. So, you could put that in as a statutory requirement
and enforce it. You could put regulatory budgets in. That was
the Trump administration administrative approach. You could
make that a statutory approach.
Ms. VAN DUYNE. What was that?
Mr. HOLTZ-EAKIN. Regulatory budgets. At the Department of
Interior, you get a number. You could do that.
Ms. VAN DUYNE. But expand on what that means.
Mr. HOLTZ-EAKIN. What it says is that if you are an agency
and you have a regulatory budget of say $20 billion and you
have a rulemaking that is going to cost $40 billion, you have
to find a way to reduce other regulatory burdens by $20 billion
because you have a budget for increased costs to be imposed on
the private sector. That gives all sorts of good incentives.
You do the original rulemaking as cheaply as possible. Forty
has to be the cheapest possible way to get that done. And then
you are also always reviewing old regulations to see if you do
not need them so you can find your $20 billion dollars in
savers. And the stabs are permanently incentivized to keep
track of what the old ones are doing and what they cost so that
you can have a saver in hand when you need to pay for
something. It is the same phenomenon we see with pay-for
regulations in the Congress for budgetary purposes. You have to
have a way to go pay for a piece of legislation. You have to
know what other pieces will provide those savings. So those are
good incentives to instill into agencies. They do not exist at
all right now. There are no incentives now.
Ms. VAN DUYNE. That is an easy statutory fix.
Mr. HOLTZ-EAKIN. It is an easy thing to pass and then you
will have to build the culture to enforce it.
Ms. VAN DUYNE. But actually having built it in, look, I
used to work for HUD. I understand how difficult it is within
the bowels of our bureaucratic beast, how difficult it is. But
if that is the regulations that they have to follow, if that is
the budgetary, it is a lot easier to get things done, I guess
to create the sense of policies that we are talking about.
Mr. HOLTZ-EAKIN. Heavily anecdotal evidence from talking
with permanent staff and agencies during the Trump
administration, but they certainly began to get the game which
is, okay, we are not going to have any flexibility so we need
to have ways to save money with rulemakings. Here is a couple
we will put in our back pocket for when the top floor calls
down and says we need something.
Ms. VAN DUYNE. And that would save money not only for the
federal government, but then it would also relieve a lot of the
regulatory red tape and burdens on small businesses.
Mr. HOLTZ-EAKIN. These costs are not federal budget cuts.
These are costs imposed exclusively on the private sector and
that is where the savings will accrue.
Ms. VAN DUYNE. Excellent. Thank you.
Chairwoman VELAZQUEZ. The gentlelady's time has expired.
Now we recognize the gentlelady from New York, Ms. Tenney,
for 5 minutes.
Ms. TENNEY. Thank you, Madam Chairwoman.
I, too, would like to join with my colleagues in
recognizing and remembering Jim Hagedorn, Representative, who
was just a great friend, great Member of the Committee, and my
condolences to him, to his family, and to his friends. It is
tough in the Committee without him.
But I wanted to say thanks again to the Chairwoman and the
Ranking Member for holding this meeting today. And thanks to
our witnesses for appearing before the Committee. This hearing
will hopefully play an important role in the lively debate that
we have across the nation and the future of antitrust in the
United States.
In recent decades, increased corporate concentration,
lagging dynamism, and lacking competitiveness prior to the
COVID-19 pandemic, historically low rates of firm formation,
and death point to the need for improvement. As the House Small
Business Committee, we have an important role to play in
investigating and highlighting the impacts of market
concentration and antitrust measures of America's firms. In the
Antitrust Law, a one dimensional emphasis on consumer prices or
the consumer welfare standard is most certainly come at the
cost of the interests of American producers and our national
industry capacity. The key to getting the antitrust question
right is to strike the proper balance between prioritizing low-
cost goods for consumers, fair competition for U.S. producers,
and the need for a self-sufficient national economy that can
sustain stable, well-paying jobs, and provide for the common
welfare during times of crisis.
In addition, the consumer welfare standard is not always
the most applicable lens through which to evaluate antitrust
matters. Take for example the digital economy where products
are often free to users, such as the case of meta platforms
known as Facebook. Another example is Amazon which offers cheap
goods to American households supported by subsidies from its
web services for which the government is a major customer. In
this example, American producers, including many small
businesses like my own, are undercut by inexpensive, sometimes
dangerous, counterfeit foreign goods while consumers receive
lower prices. In this example it is obviously insufficient to
look only at what consumers pay.
Small businesses are not only important because they are
small but because they are often flexible and have great growth
potential. In addition, they have connections to their
communities and workers in ways that larger firms cannot
replicate. We saw many examples during the pandemic.
Policymakers must therefore be cautious of taking actions and
passing laws that will make it more difficult for these small
businesses to grow, hire more people, and benefit from the
economies of scale, which can make work higher paying and
contribute to technological growth.
On the other hand, lax enforcement of antitrust laws are in
action in the face of serious market concentration also harms
the ability of these smaller firms to form and grow. Antitrust
measures can be a powerful tool. They must also be used
judiciously and applied in ways that are not subjective.
Instead, I would like to focus more on dynamism, innovation,
and the ability to let small businesses grow. As a small
business owner, I know that many of my customers that rely on
their newspaper were negatively impacted by the onslaught of
Walmart and big box stores.
So, I want to just take my first question and direct it to
Dr. Holtz-Eakin. And some of the Members on the Committee have
said that the market concentration has been the primary reason
for rising costs and the rates if inflation. And I think my
colleagues and I witnessed some of the things the Democrats
have taken advantage of during the pandemic last year and the
year before is to flood the economy with endless cash. To me,
this seems to be far more likely an explanation for the
crushing inflation Americans are experiencing. Is that
something that you would agree with, Mr. Holtz-Eakin? Or Dr.
Holtz-Eakin? I feel like it is the huge cash that is actually
creating a lot of this problem as the primary reason. What
would you say to that?
Mr. HOLTZ-EAKIN. I would agree with you, Congresswoman. On
the issue of somehow concentration being the source of economy-
wide inflation, there simply are no data that show across the
board increases in concentration that would be a plausible
explanation for the sharp rising prices across every sector and
across all geography. So, the cash is a much more plausible
candidate.
Ms. VAN DUYNE. What do you think that we should do in
Congress to deal with this potential problem with anti-
competitiveness and concentration? What would you do? What do
you think we could do now other than, obviously to me, lowering
regulations, less taxes would help our small business but what
else do you recommend that we can do as a Small Business
Committee?
Mr. HOLTZ-EAKIN. Well, I would be happy to give you a
longer answer for the record since time has expired.
Ms. VAN DUYNE. Okay.
Mr. HOLTZ-EAKIN. But certainly, I think the focus should be
on ease of entry and the dynamism you focused on.
Ms. VAN DUYNE. Thank you very much.
I yield back.
Chairwoman VELAZQUEZ. The gentlelady yields back.
Now we recognize the gentleman from Wisconsin, Mr.
Fitzgerald, for 5 minutes.
Mr. FITZGERALD. Thank you, Madam Chair. And I also wanted
to thank you for your recognition of Congressman Hagedorn.
Great guy and we are all going to miss him very, very much.
A question for Mr. Eakin. There has been a lot of
discussion here today and we have spoken in the past about this
assumption that big is bad and that the concentration is
inherently harmful to competition. However, I think kind of the
jury is out. And as we move through a new phase of America's
post-COVID economy, it is probably settled that economics of
scale yield efficiencies; right? And I am just wondering what
your thoughts are on that. And I know it is a broad question
but would love to hear your take on that.
Mr. HOLTZ-EAKIN. Well, thank you. Certainly, I do not think
anyone should somehow say vigorous enforcement of antitrust is
a bad idea. It is a good idea and there are reasons for this.
But asking the right question and taking a disciplined approach
to the analysis is very important. And I think the consumer
welfare standard has provided tremendous discipline to the
analysis of competition policy. It does not matter if you are
big or small. The question is whether you are good or bad for
Americans. And so, concentrating the analysis to make sure that
you follow all the way through to the American household and
the consumer is a very important part of this. The reason the
United States has relied on private enterprise in competitive
markets to deliver goods and services is that it has been the
most effective way and has led us to be the largest, strongest
economy on this globe. Having an antitrust approach that
mirrors that is a perfectly sensible idea and I think we should
continue to do that.
I am concerned about some of these other approaches. There
are these pieces of legislation, in the Senate, for example,
that target platforms and app stores and they single out those
bigger than $600 billion. Why is that the right number? Why is
that big and $500 billion is not big? What happens when you do
that? Does it help small businesses? Well, if it inhibits their
ability to acquire small businesses who cannot do an IPO and
where that sale is how they pay off their venture investors,
they are going to hurt small business. They are going to hurt
that environment. I think there are some legitimate concerns
about the privacy and national security implications of those
proposed legislation. There is a Chamber of Commerce report on
it.
So, I guess what I am concerned about is the unintended
consequences of taking an ad hoc approach to doing competition
policy--writing legislation, targeting a few American firms,
some which you can name by name, and people do. Let's have a
set of principles that make some sense and will support the
capacity of every firm to succeed if it does good business.
Mr. FITZGERALD. Very good. And if I could just follow that
up really quickly. I was also a Member of the Judiciary
Committee. What we have seen is that the FTC and to some extent
even DOJ, I mean, these mergers have kind of ground to a halt.
And that is kind of a strange message that is being sent to the
private sector and I would also say that as a result of that,
many of these small businesses that oftentimes find themselves
in a position where they have to liquidate after first
struggling for some period of time, the best way is to be
acquired or some type of merger with a smaller entity and at
the end of the day it is kind of a win-win for everybody. And I
do not think we should ever take that off the table. I am
wondering if you had a comment on that.
Mr. HOLTZ-EAKIN. Well, for me, I have never felt that it is
the government's job to dictate business models. Firms can
acquire new divisions. They can do capital investments, build
new divisions. They can configure themselves as they see fit.
What matters is their conduct in the marketplace and whether it
is harmful to the American household. And that should be the
focus, not how businesses choose to configure themselves and
making decisions in advance about what is and is not an
appropriate business model. I do not think the government
should be in that business.
Mr. FITZGERALD. Thank you, Madam Chair. And I will yield
back.
Chairwoman VELAZQUEZ. The gentleman yields back.
Thank you again to all of our witnesses for your testimony
today. Creating an environment where American small businesses
can compete and thrive is one of the Committee's top
priorities. So, we must ask ourselves, what type of economy do
we want to foster for American entrepreneurs? One where small
businesses have the chance to develop and reach their full
potential. I think we can all agree we want to create a
nurturing environment for our nation's small firms. As always,
I look forward to working with my colleagues on both sides of
the aisle to pursue policies that help level the playing field
for American small businesses.
Without objection, Members have 5 legislative days to
submit statements and supporting materials for the record.
If there is no further business to come before the
Committee, without objection, we are adjourned. Thank you all.
[Whereupon, at 11:56 a.m., the committee was adjourned.]
A P P E N D I X
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