A new report by the Institute for Justice highlights the excessive regulatory obstacles in the way of starting new businesses in cities across the United States. The report–titled “Barriers to Business”–is a remarkably detailed study that quantifies the regulations restricting new businesses in 20 U.S. cities. It should be a wake-up call for all of America and spark an essential discussion this year.
While the report focuses on 20 cities, those cities are not unique. Rather, they are emblematic of a regulatory problem nationwide. In addition, regulatory barriers exist at all levels of government, not just in our cities.
That’s why candidates for local, state, and federal offices in this election year should be asked specifically, “What will you do to make it easier for Americans to start and grow new businesses?” It’s especially important in the wake of the Covid-19 pandemic, which has devastated so many small businesses and downtown business districts. Let’s invite those candidates, too, to meet entrepreneurs at coffee shops, maker spaces, and other places where entrepreneurs are building America’s economic future. The candidates need to understand the obstacles that are in the way.
The American Dream is besaddled by byzantine regulations. As the report shows, for example, opening a restaurant in Boston is a 92-step process. In Detroit, it’s 77 steps. In Atlanta, it’s 76.
Opening a barbershop takes 81 steps in Boston, 68 in Atlanta, and 66 in Jacksonville, Florida. Opening a bookstore takes 74 steps in Newark, New Jersey, 46 in Atlanta, and 44 in Indianapolis, New Orleans, and Seattle. How much protection does the public need from a bookstore? What would be the public harm if there were too many?
The report goes into great detail. That 92-step process to open a restaurant in Boston requires that 22 forms be completed, 17 in-person visits be made to government offices, 12 fees be paid, and nine government agencies be involved, at a total cost in government fees of $5,554. Opening a restaurant in San Francisco requires that 17 government fees be paid at a total cost of $22,648.
These costs don’t include the hours wasted by entrepreneurs. They don’t include the opportunities lost. They don’t reflect the difficulty for most people of raising that kind of money–before a business is even “in business.”
One of the most obstructive steps that governments impose is requiring new businesses to pay fees to the government before they have revenue. In San Francisco, for instance, building permits required to open a restaurant cost $7,600 in review fees and $2,423 in issuance fees. In Pittsburgh, fees to open a bookstore total $2,105.
Similarly, licensing requirements impose a burden that often seems more designed to prevent competition than to protect the public. Atlanta, for instance, licenses 82 categories of business activities, complicating the red tape that entrepreneurs must navigate. In Birmingham, Alabama, barbershop owners must visit agencies in person seven times, in addition to undergoing their state-level barber educational and licensing requirements. In New Orleans, bookstore owners must complete 11 requirements in person. Government officials nationwide should review licensing requirements and demand evidence that such requirements are needed for public protection.
Right to Start, the national nonprofit movement that I lead, urges that all government registration costs and licensing fees be eliminated for new businesses at the start and in their early years. Government should be facilitating new business growth, not thwarting it. The current system is not even in the government’s interest, as the government benefits most if the business thrives–and becomes a growing taxpayer–and not if the business is stopped before it can start.
America, the world’s quintessential startup nation, has made entrepreneurship a sport for elites. Ordinary citizens need not play. When 51 percent of our fellow citizens have less than three months of emergency savings, this red tape is making the American Dream an impossibility for at least half the nation. And we’re limiting job prospects, as new businesses generate almost all net job growth.
The report by the Institute for Justice, a nonprofit public interest law firm that relies solely on individuals and charitable foundations to support its work, is especially timely. Every community, big or small, can find ways to strengthen its entrepreneurial environment.
Communities should not just look at the obstacles examined in this report. They should explore the full 360-degree range of conditions affecting their entrepreneurs. Other barriers include, for instance, lack of access to capital, tax hassles, and barriers to government contracts.
Right to Start’s Field Guide for Policymakers provides a list of barriers at each level of government. It offers a road map for every community to boost entrepreneurship.
Communities don’t have to conduct extensive research. To identify barriers, one can simply talk with local entrepreneurs and the organizations that champion them. Barriers to entrepreneurship are not deep secrets. They are already evident to entrepreneurs.
Entrepreneurs are not hard to find. While many work from home, many others gather at well-known locations where they share insights, make connections, and problem-solve. The program 1 Million Cups, launched by the Kauffman Foundation 10 years ago, for instance, holds weekly meetings of entrepreneurs in more than 160 communities nationwide. I helped grow that initiative in my previous role as vice president of entrepreneurship at the Kauffman Foundation, and it’s also a venue where policymakers can meet entrepreneurs and hear their concerns.
Making it easier for everyone to start businesses boosts entire communities–not just aspiring business owners. It revitalizes local economies. It creates jobs that will remain in-town. It adds distinctiveness to cities and towns. It diversifies wealth creation.
The pandemic has taught us all how much we depend on entrepreneurs, especially those close by. As much as we may appreciate the convenience of Amazon deliveries from afar, local businesses define our communities, provide places to gather, raise incomes, and enliven our neighborhoods.
The Institute for Justice report rightly states that there should be “a cheaper, faster, and simpler path to entrepreneurship.” Communities can go further by supporting entrepreneurs in all ways.
