Every four years, presidential candidates pledge to destroy the evil federal bureaucracy wreaking havoc on our small businesses and aspiring entrepreneurs.
Abolish the Environmental Protection Agency! Level the Labor Department! Eliminate Education, kill Commerce and eradicate Energy!
It’s true that the Obama administration has greatly expanded federal rulemaking. But if you talk with entrepreneurs, you’ll learn that — with the major exception of our criminally convoluted tax system — the most burdensome barriers to their efforts often don’t originate with the feds.
They are, instead, constructed at the state and local levels.
Think about it. States and municipalities handle most occupational licensing, now required for a quarter of U.S. workers.
Depending on the state, a person may need to attend months of expensive training and fork over hundreds of dollars in fees to work as a hair-braider, auctioneer, florist or interior decorator, allegedly in order to safeguard public health. One study found that the average occupational license requires $209 in fees, one exam, and about nine months of education and training.
States and municipalities also regulate business licensing, registration, permitting and hiring. Those trying to start new businesses may have to register with five agencies to legally hire an employee. Even before that, they may need to visit a dozen different state, county and town websites — of varying levels of functionality — to open their doors.
Start-up founders will encounter state, county and city red tape when they deal with zoning laws, or various insurance requirements (although for health insurance, of course, the feds have set many of the ground rules). They may have to navigate complex state and local systems to figure out how big their sign can be and where it can be placed.
Some costly start-up requirements are even more peculiar.
In New York, for example, new LLCs have to publish notices about their existence in both a daily and a weekly newspaper for six consecutive weeks, in publications officially designated by the county clerk. That may be a nice boon for struggling local papers, but it can add thousands of dollars to the cost of launching an enterprise.
No wonder the World Bank ranks the United States 49th in ease of starting a business.
All these requirements, mind you, apply to companies that launch and operate in a single jurisdiction. Heaven forbid they want to do business in multiple counties or states, which will have different and sometimes contradictory licensing and permitting requirements, or sales tax systems using different taxonomies for goods and services.
In other words: The feds may be a convenient punching bag — especially for politicians running for federal office — but it’s more often the state and local bureaucrats who will get all up in your business if you’re starting a business.
All of which is to say that I’m delighted Hillary Clinton is interested in encouraging states and cities to reduce the regulatory burdens on small businesses and start-ups.
Among a set of policies released this week, Clinton proposed offering federal funds to states and localities that are “willing to make starting a business cheaper and easier and meaningfully streamline unnecessary licensing programs.” The funding could be used in part to offset states’ lost licensing revenue, which currently totals billions of dollars.
She also promises to work with states to standardize licensing requirements, so that credentials can be transferred from one place to another, and to provide technical assistance to help states determine which regulations actually serve the public good.
Admittedly, it’s hard to tell whether these ideas would change much. The Obama administration’s splashy “Startup in a Day” initiative, in which nearly 100 cities signed a pledge to, within a year, create a way for entrepreneurs to launch a business in a single day, seems to have fizzled. More than a year later, a Small Business Administration spokesman said that not a single city had made good on this pledge.
Powerful industry groups and other organizations also have a vested interest in preserving barriers to entry, which is one reason so few occupations ever get de-licensed.
Finally, establishing consistent principles about which regulations protect public safety, and which merely protect turf, is challenging. Probably it’s a good thing for doctors to be licensed, for restaurants to have sanitation requirements and for commercial drivers to have liability insurance. Your mileage may vary.
But still, I’m glad to see more non-national “job-killing regulations” getting some national airtime. This red tape keeps too many entrepreneurs in the red and on the sidelines.
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