U.S. Senator Richard Shelby, ranking Republican on the Senate Committee on Banking, Housing and Urban Affairs, today made the following statement at a Committee hearing on spurring job growth by removing barriers to capital formation for small businesses
Statement of Senator Richard C. Shelby
Committee on Banking, Housing and Urban Affairs
December 1, 2011
“Thank you, Mr. Chairman.
“Today, the Committee will consider ways to increase job growth by improving access to capital for small businesses. Over the past three years, the number of new businesses launched each year has fallen by 23%. This sharp decline should be viewed as a warning signal about our economic future.
“Small businesses are the lifeblood of the U.S. economy. However, if entrepreneurs are not creating new small businesses today, there won’t be new large industries tomorrow. It is therefore critical to the long-term health of our economy that entrepreneurs have the tools they need to create and innovate.
“Unfortunately, the laws and regulations pushed by the Administration over the past three years have created a regulatory climate hostile to business creation. The Administration has viewed businesses not as valuable contributors to our economy, but as a means for implementing social policy. In the 2,000 pages of Dodd-Frank, there is not a single item that would make it easier to start a business.
“Instead of focusing on how to create jobs, the Administration has imposed one costly mandate after another. These mandates are not only costly, but they bog down small businesses with unnecessary regulations. In some cases, these regulations are fatal to fragile startups. In other cases, they discourage the flow of capital investment needed to even start a new business.
"It should therefore be no surprise that our unemployment rate has stagnated at 9 percent and business creation has plummeted over the past three years. If we want to return to an economy that creates jobs, there needs to be a change in policy. Fortunately, there seems to be one area where there is a bipartisan consensus for change --making it easier for entrepreneurs to obtain funding.
“This could be done in two ways. First, the securities laws and regulations could be amended to make it easier for private companies to raise capital. For example, companies could be permitted to raise money from a greater number of investors without having to incur the substantial reporting costs of registering with the SEC. Since nearly all new businesses are private companies, these types of reforms could help reduce one of the primary obstacles all entrepreneurs face.
“The second way we can increase the availability of funding is to make it easier for companies to access the public markets. Presently, small businesses that want to go public have to overcome a one-size-fits-all regulatory approach that requires them to bear disproportionate costs.
“According to a recent report by the IPO Task Force -- a group of professionals representing emerging growth companies – ‘the cumulative effect of a sequence of regulatory actions … while mostly aimed at protecting investors from behaviors and risks posed by the largest public companies…have driven up costs for emerging growth companies looking to go public….’ The IPO Task Force estimates that the average cost for a company to go public is $2.5 million, and the annual cost to stay public is $1.5 million.
“These costs make the public markets unaffordable for thousands of small companies. As a result, regulation can deprive funding for companies at exactly the moment they want to expand and create new jobs.
“While our Securities laws have helped to preserve our capital markets as the largest and deepest in the world, they need to strike the right balance between protecting investors and ensuring that companies can raise funds. It is becoming apparent that we do not have the right balance. The laws need to consider the real world costs of complying with regulations, especially those borne by small businesses.
“Accordingly, I am encouraged that several bills have already been introduced with bipartisan support that would address some of the unique problems faced by small businesses. It is my hope that the Committee will take a serious look at these bills and other proposals to modernize our Securities laws.
“Over the last few weeks, there has been a lot of talk about the need to do more to create jobs. I believe that these bills give the Committee an opportunity to take action. Accordingly, I stand ready to work with my colleagues on the Committee to develop legislation to get our economy back on track.
“Thank you, Mr. Chairman.”