As Democrats take power in Congress, speculation has swirled around the question of why Republicans lost. But there is a factor – a costly factor affecting American businesses – that has gone largely unnoticed.
In the summer of 2002, in response to Enron and WorldCom, Congress passed a slew of business regulations called the Sarbanes-Oxley Act. Although it was written largely by the then-Democratic-controlled Senate, most Republicans barely criticized the law when they regained power. Even when studies showed its costs were several times greater than anticipated and it was crippling small public companies, GOP leaders were reluctant to take on the law for fear of being saddled with the albatross of Enron.
But Congress’ reluctance began to change in the weeks preceding the 2006 elections. Two weeks before the election, a member of the House went on CNBC and said Sarbanes-Oxley wasn’t all it was cracked up to be. This politician said while “there’s a need for it” and “you need the transparency,” the law clearly had “unintended consequences.” The House member then said flatly, “I don’t think you need the whole package.”
This was a substantial, if not specific, statement from a politician – implying that some parts of the original Democratic legislation were open for repeal. But perhaps just as remarkable was who made the statement. It was then-Minority Leader Nancy Pelosi.
Pelosi wasn’t alone. In the run-up to their 2006 election victory, many Democrats suddenly became concerned about the consequences of “Sarbox’s” overregulation of business. The House Democrats’ “New Direction for America,” a campaign document that has been compared in the press to the 1994 GOP Contract with America, even contained a plank promising legislation to “ensure Sarbanes-Oxley requirements are not overly burdensome” for small companies.
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In fact, the fascinating story the media have missed is that the Democrats arguably ran to the right of Republicans on this issue, because of GOP leaders’ sheer lack of action on this issue affecting the free market.
While the House Democrats’ document at least called for some relaxing of the law, prominent Republicans such as Securities and Exchange Commission Chairman Chris Cox and Ohio Rep. Mike Oxley, whose name the law bears, said no legislative fixes were needed. Businessman and activist Mallory Factor, chairman of the Free Enterprise Fund, warned Republicans in a March Wall Street Journal op-ed, “like everything else in the free market, the free-enterprise agenda is up for grabs.”
In the days before the election, Democrats gripped the Sarbox issue even tighter, highlighting the lack of GOP action to ease business burdens. New York Sen. Chuck Schumer co-wrote an op-ed that ran in the Journal November 1, expressing concern that Sarbanes-Oxley rules were causing foreign firms to avoid listing on the New York Stock Exchange.
Because of the law, Schumer wrote, “there appears to be a worrisome trend of corporate leaders spending an inordinate amount of time on compliance minutiae rather than innovative strategies for growth.” He added that “too much regulation stifles entrepreneurship, competition, and innovation.”
Six days before the election, Schumer was taking a page from the Reagan playbook. But less than a month after his party’s Nov. 7 victory, Schumer told the New York Daily News the election showed “that Reaganomics is dead, that the Reagan philosophy is dead.”
The Daily News, of course, did not contrast Schumer’s new anti-Reagan quip with his Reaganesque, pro-market election rhetoric. But such amnesia about his statement is typical. Count on most of the press not holding Democrats accountable on their promises to reform Sarbanes-Oxley.
To do so would be to acknowledge a truth that many polls have shown, but many in the media don’t want to admit: a majority of Americans still favors less government. The GOP lost this majority in part because of Republican leaders’ embrace of big spending and more regulation such as Sarbanes-Oxley.
A McLaughlin post-election poll found 59 percent of voters – including a plurality of Democratic voters – favored “smaller government with fewer services.” The GOP bled small-government voters who probably wouldn’t have considered boosting Democrats in the past.
Meanwhile, the burdens of Sarbanes-Oxley are hitting home for people across the country. Local companies such as community banks have given up their stock market listings because compliance costs were just too high. Employees have noted the diversion away from productive work to what Schumer called “compliance minutiae.”
In fact, compliance for just one part of the law has cost businesses upwards of $35 billion a year total for all public companies – including 35,000 extra man-hours of work for the average individual public firm. Despite the lack of interest from much of the media, Democrats would earn eternal gratitude from many if they keep their promise to kill the most onerous provisions of this painful package.