Productivity Comes From Small Gains: Even Minor Regulatory Burdens Can Inhibit Improvements.

An example of a real world business process improvement leading to a productivity gain.

From The Wall Street Journal, "Delivery Drivers to Pick Up Pace by Surrendering Keys" by Jennifer Levitz:

Soon, drivers will wear a digital-remote fob on their belts and will be able to turn the engine off with a button that will unlock the bulkhead door at the same time. That automatic door opening will save 1.75 seconds per stop, or 6.5 minutes per driver per day, while also reducing motion and fatigue, said David Abney, UPS's chief operating officer.

Now try to imagine the US Postal Service caring about saving 6.5 minutes per day in delivering the mail, or any other government agency trying to do a job faster so it can accomplish more per day.

Its not that 6.5 minutes is a lot of time, but large business productivity gains occur by accumulating many small changes.

Poland Spring in the last couple of years slightly reduced the size of its bottle water caps to save a tiny amount of material cost per bottle. Over the last 15 years Poland Spring reduced the amount of PET plastic its uses in bottles by 60 percent. Big changes do not happen in one step.

Businesses are constantly looking for small changes in materials and processes to reduce material, labor, transportation and time costs. Lower costs leads to lower prices and improvements in the US standard of living. Each savings though is usually small. It is the process of constantly looking to reduce costs in small ways that leads to big gains.

Try to imagine how companies would operate and search for improvements if the companies had to justify each of their productivity improvement actions to regulators. Many small changes would not occur because the regulatory costs of justifying the action for each minor improvement would typically outweigh the benefit.

Lower costs means more sales of the product or more available consumer cash for spending on other consumer goods and services increasing those sales. More sales translate into more staff and a greater likelihood of expansion and the hiring of more staff.

Regulations do not have to be overly burdensome or draconian to curtail productivity improvements, business expansion and employment growth. When governments and agencies analyze regulatory costs, they do not consider lost opportunities, such as lost productivity gains. Primarily, regulators consider only out of pocket costs when promulgating regulations.

A small regulatory cost can negate a small improvement and the loss of small improvements, over time, builds into a loss of large productivity gains and a loss of economic growth and employment.

Eventually, many regulated businesses face the need to achieve large gains all at once, and as one learns in economics and finance, to make large gains one needs to take large risks. Regulatory costs can, as an unintended effect, push firms to take excessive risks to achieve productivity and profitability gains. Excessive risks leads to a greater likelihood of financial failure, ruin, and safety shortcuts, often the exact opposite of the reason for regulation.