JOBS Act — What’s Been Implemented — Is Working; Now Implement The Rest!
CEI Research Associate Evan Woodham contributed to this post.
Another round of disappointing jobs numbers released last Friday shows more than ever that massive spending “stimulus” isn’t working in getting the U.S. economy going. We must, in the phrase coined by my Competitive Enterprise Institute colleague Iain Murray, “liberate to stimulate.”
But not only is the U.S. government piling on ever-more regulation on all sectors of the economy, it is stalling on implementing even modest bipartisan regulatory relief passed into law.
On April 5 of last year, President Obama signed the Jumpstart Our Business Startups Act. Risking heat from allies, I praised the president for this action in conservative venues such as National Review, because I believe that good public policy actions should be praised no matter who the actor is.
But on its first birthday, much of the JOBS Act might as well still be in the womb. That’s because except for provisions that went into effect automatically — and these are working well, as I will get to in a minute — liberalized rules under the JOBS Act have been inexcusably delayed by the Securities and Exchange Commission (SEC).
Take equity “crowdfunding,” raising money in small amounts for startups that are admittedly speculative — as all startups from Microsoft to Wal-Mart were to some degree — but have the potential to create revolutionary innovation. Crowdfunding for movies, music, and other creative ventures already takes place on sites like Kickstarter and Indiegogo, but it is limited because it is operating on a charity-type model.
Experts agree that for crowdfunding to reach its full potential, those funding the ventures must be given ownership stakes and be able to share in the success of the venture if it does well. Yet securities laws put in place in the 1930s — when many households didn’t have telephones, let alone Internet — put up massive barriers to doing this, in the form of Sarbanes-Oxley, Dodd-Frank and many other of the same hoops large companies must go through in becoming a public company.
While I and many others would get rid of most of these rules for large companies as well, as they add costs to the economy while doing little for investors, there was widespread agreement that they certainly shouldn’t apply to tiny Internet ventures by small entrepreneurs. The JOBS Act cut some of the red tape for these micro-businesses, but still retained as well as added new safeguards to protect against fraud
In signing the bill into law a year ago, President Obama stated eloquently that “for the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.” Yet more than a year later, the SEC hasn’t even proposed a first draft of a rule to allow this to happen.
As Rep. Patrick McHenry (R-N.C), author of the law’s crowdfunding provision, points out in a new video statement, “Today, months after the deadline for the SEC to provide rules for crowdfunding, entrepreneurs across the country have been left with nothing to do but wait and wonder.”
To be fair to Obama, the SEC is an “independent agency” not directly under the president’s control. Yet it’s reasonable to conclude that if Obama made even one-tenth of the rhetorical push on crowdfunding that he is making to end the sequester, the agency would get off its laurels on the JOBS Act a little bit faster.
And fortunately, the JOBS Act contained a couple provisions that went into effect immediately after the law was signed, not needing SEC approval. One of them is “on-ramp” provision sponsored by Rep. Stephen Fincher (R-Tenn.) that gives small and mid-size companies launching initial public offerings (IPOs) five-year exemptions from some of the most onerous provisions from Sarbanes-Oxley and Dodd-Frank.
This is already achieving its stated goal of helping “emerging growth” companies more easily access the capital market, paving the way for expanding their businesses and growing jobs. Although the total number of IPOs last year was basically unchanged — largely due to the implosion of the Facebook IPO that had nothing to do with the JOBS Act (indeed, had the JOBS Act been in effect earlier, Facebook may have gone public at a smaller stage, letting average investors share in more of the gains of its growth) — there were successful IPOs of companies that were notably smaller than those of recent years.
As I wrote in a recent letter to The New York Times, “The online travel site Kayak and the discount retailer Five Below went public using the JOBS Act’s five-year exemption from the onerous mandates of laws such as Sarbanes-Oxley and Dodd-Frank. These firms are now trading above their initial public offering prices and are expanding their operations.”
Over the next few weeks, in OpenMarket and other venues, my colleagues and I will highlight these and other success stories from the JOBS Act provisions that have already gone into effect. And CEI will continue its push to make the SEC deliver on implementation, so that all of the modest yet significant deregulation in this bipartisan law can be “born” before its second birthday.
And as Baroness Margaret Thatcher, whose passing we mourn and whose life we celebrate, recognized, good public policy must be “born” for entrepreneurs to be made. “However pervasive an enterprise culture is, most people are not born entrepreneurs,” she wrote in her memoirs The Downing Street Years.