March 31, 2004

Corporate Reform and Entrepreneurship

Stephen BoykoHere and Aron Gottesman have something to ponder when looking at the government's response to "Enronitus:"

What is ironic is that having demonstrated the virtues of the capitalistic system, American policy makers are now trying to recreate the governance regime of European ancestry. Sarbannes-Oxley type regulation is a large operational tax on job creation that gives rise to unintended consequences. The more top-tier regulatory commands strive for predictive capability, the more imprecise the management of micro-cap commercial activity. The more commands add costs to the micro-cap market, the greater the incentive to go underground and/or offshore to conduct business. This, in turn, causes the US micro-cap market to become less transparent, less innovative and less productive.

Napoleonic Code governs Europe, where an activity is prohibited unless expressly permitted. English Common Law reverses the process; unless an activity is expressly prohibited, it is permitted. America took this “openness” and added the concept of “sweat equity” during the Jacksonian Era as an incentive to the settlers of the frontier. Yet disproportionate regulation, such as the Sarbannes-Oxley Act, reverts to Napoleonic Code. Our policymakers are fostering what our ancestors rejected!