President Trump recently issued an executive order directing federal agencies to eliminate regulations that hurt market competition.
This order is one of several recent actions designed to free companies and citizens from crushing regulatory burdens. Other directives require agencies to slash 10 regulations for every new one they impose, to get rid of rules that fail a cost-benefit analysis, and to sunset regulations that impede energy development.
These initiatives are all important and will provide much-needed relief to small businesses drowning under the regulatory deluge of the last four years. But the president’s pro-competition order could be his most significant regulatory action to date.
By its very nature, top-down regulation issued by federal agencies tends to harm market competition by crowding out small businesses. New regulations raise costs for everyone, but big businesses can easily pay their in-house lawyers or outside counsel to figure out the cheapest way to comply. And they can pass along those increased costs to their customers.
Small businesses don’t have that luxury. They may not have the money to pay a lawyer to figure out the rules for them or the time to pore through thousands of pages of dense text to figure it all out themselves. Conscientious businesses may have no choice but to shut down. Less conscientious businesses may plow ahead and hope they don’t get caught. The end result is reduced competition and uneven regulatory compliance.
Hopefully, federal agencies will bear this in mind as they start combing through their rules. Every regulation on the books runs the risk of harming market competition unless it’s clearly and succinctly written and provides sufficient flexibility that small businesses can achieve compliance at costs proportionate to those of their larger peers.
But history suggests agencies may try to get around this requirement. In fact, agencies are already required to consider the effects of regulations on small business under a law called the Regulatory Flexibility Act. But agencies tend to ignore this law. They routinely certify that their rules have no significant effect on small businesses, and no one challenges them on it.
The Trump Administration may therefore consider building on this executive order. One way of doing so would be to direct agencies to focus on the overall number of regulatory requirements in addition to reviewing regulations one-by-one.
Some commentators have compared regulations to pebbles in a stream: any one pebble may not make much of a difference, but a huge pile of pebbles may stop the stream completely. At some point, you have to start eliminating overburdensome rules to restore a healthy market dynamic.
For inspiration, the administration could look to the innovative work happening just down I-95 in Richmond. Shortly after beginning his term in 2022, Governor Glenn Youngkin set the ambitious goal of cutting regulatory requirements by 25%.
Now, three years later, the governor’s regulatory modernization effort has proven to be a resounding success. Virginia agencies have streamlined regulations by over 21% so far and are on pace to hit close to 33% by the end of his Administration. These changes are saving Virginia businesses and citizens over $1.2 billion per year.
Importantly, Virginia has achieved these impressive results without cutting any requirements that are important for public health, safety, or welfare. About $700 million of the savings comes from cutting gold-plating requirements from the building code such as bird-safe windows that, though nice to have, are not necessary for resident safety and drive low-income homebuyers out of the market. Nearly $200 million comes from expediting the licensing process for the building trades, getting people to work faster and helping alleviate severe labor shortages.
As the Virginia experience shows, agencies do a good job of cutting anticompetitive regulations when they’re given a clear target. President Trump could achieve a similar outcome by tasking DOGE, OIRA, or some other government entity with cutting a specified percentage of federal requirements.
And though cutting 25% or even 10% of requirements would provide an extraordinary boost to market competition, regulators will need to look beyond the Code of Federal Regulations and confront the countless guidance documents agencies have issued.
Burdensome though they may be, regulations all appear in a centralized place and are issued through a transparent process involving public input. Guidance documents, by contrast, can be housed anywhere (a website, an agency file cabinet, a PowerPoint on a low-level bureaucrat’s laptop) and can be issued with virtually no process.
Here too, Virginia’s experience offers hope. Since Governor Youngkin took office, Virginia agencies have eliminated 44% of the words in their guidance documents. They are on track to cut over 50% by the end of the year. And every action modifying a guidance document now appears on the publicly accessible Town Hall website.
Admittedly, the federal government faces a more challenging road ahead. Virginia agencies issued around 3000 guidance documents prior to beginning the streamlining process. No one knows the total number of federal guidance documents, though it may be in the millions.
Fortunately, federal agencies will have new, powerful tools at their disposal. Since Virginia started its regulatory modernization work in 2022, there have been extraordinary advances in artificial intelligence. Virginia will soon partner with the Cicero Institute to launch an AI-empowered program that scans both regulations and guidance documents to identify streamlining opportunities.
DOGE has already used AI to great effect in its cost-cutting efforts, and it can follow Virginia’s lead by using it in the regulatory space as well.
Since day one, the Trump Administration hasn’t been afraid to go big and make fundamental reforms that change the way Washington operates. President Trump’s recent executive order on restoring market competition could help revive small businesses by cutting red tape and leveling the playing field.
Virginia’s regulatory streamlining efforts have helped make it America’s top state for business. Expanding these proven reforms nationwide could usher in a new era of economic growth powered by the small businesses that are the seedbed of innovation and shared prosperity.
Reeve T. Bull is the Director of Virginia's Office of Regulatory Management.
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