Small businesses losing out to red tape
By Chip Mellor and Dana Berliner
USA Today
October 26, 2010
In an economic climate with few jobs and cutbacks on basic city services such as police protection and firefighting, you would think cities and states would be overjoyed when someone was willing to open up a new business, bringing with him jobs, economic vitality and tax revenues. You might think that, but you'd be wrong.
Instead, cities and states stifle new small businesses at every turn, burying them in mounds of paperwork; lengthy, expensive and arbitrary permitting processes; pointless educational requirements for occupations; or even just outright bans. Today, the
Institute for Justice released a
series of studies documenting government-imposed barriers to entrepreneurship in eight cities. In every city studied, overwhelming regulations destroyed or crippled would-be businesses at a time when they are most needed.
Time and again, these reports document how local bureaucrats believe they should dictate every aspect of a person's small business. They want to choose who can go into which business, where, what the business should look like, and what signs will be put in the windows. And if that means that businesses fail, or never open, or can operate only illegally, or waste all their money trying to get permits so they have nothing left for actual operations, that's just too bad. This attitude would be bad enough in prosperous times, but in a period of financial strain and high unemployment, it's almost suicidally foolish.
Along the way, the dreams of individuals are repeatedly crushed:
•In Chicago, Esmeralda Rodriguez tried to open a children's play center, paying rent month after month while she waited in vain for the government permits she needed to open her business. After a full year of bureaucratic red tape, she finally exhausted her life savings and closed down for good.
•Worried more about their personal aesthetic preferences than the survival of local businesses, Houston now strictly limits all window signs — inexpensive advertising that is vital for small shops that can't afford to advertise through other media.
•Los Angeles places enormous and pointless restrictions on home-based business. For people who are struggling and can't afford to rent commercial space, working out of the home might be their only option to stay afloat. But in Los Angeles, they had better make sure they don't use their garage, manufacture or sell any products, advertise or violate any of the other myriad laws. Many businesses end up operating illegally, scared to grow their business for fear that the next knock on the door could be a regulator.
•In Miami, an accidental loophole in state law allowed jitney van transportation services to flourish briefly. As soon as Miami-Dade County got the opportunity, however, it shut down the new jitneys and ensured no others would open by requiring any new business to prove it wouldn't hurt its competitors. It even allowed those competitors to object to any new businesses, which is like allowing
Burger King to veto the building of a new
McDonald's.
•In Milwaukee, Nasir Khan spent tens of thousands of dollars renovating an abandoned hot dog stand and getting permits, only to have them withdrawn when a local alderman intervened. The politician wanted something nicer than a hot dog stand at that corner, and apparently it was better to have no business than one he didn't like.
•In Newark, several long-term businesses just managed to escape destruction. The city tried to use eminent domain to remove one of the few thriving business areas, but new judicial restrictions on eminent domain put a stop to the city's plans. Ignatius Paslis was also lucky. Although the city delayed his permits so that his café catering to Rutgers students could not open until after all the students had left for the summer, he managed to survive until the fall, and now his business is thriving.
•Philadelphia's permitting and licensing codes are difficult enough in themselves, but city officials often seem hellbent on treating the system as a perverse game designed to punish honest enterprise. The government required convenience store owner Ramesh Naropanth to put new gates on his store before it would allow him to sell sandwiches, setting the small businessman back $8,000.
•In Washington, D.C., hundreds of people have waited more than a year to take the required class and test to become a taxi driver. Rather than encourage these individuals to create jobs for themselves, the city has simply stopped offering the class and test.
When governments actually get rid of barriers to entrepreneurship, new businesses open almost immediately. Indeed, removing even a single law can unleash entrepreneurial energy and create hundreds of jobs. Mississippi finally got rid of its requirement that African hair braiders get government-issued cosmetology licenses to practice or teach. The result? A single entrepreneur — Melony Armstrong — trained dozens of women to braid hair and open their own businesses.
In Redmond, Wash., after winning a legal challenge to a law that prohibited mobile signs, bagel maker Dennis Ballen used such signs to grow his business, expand his bagel empire with two new stores and employ dozens of individuals.
America was once known as the Land of Opportunity. It could be again, but not until state and local officials get out of the way of entrepreneurs trying to fulfill their dreams of new business and new prosperity for themselves and their families.
Chip Mellor is president and general counsel of the Institute for Justice. Dana Berliner is a senior attorney for the institute. For more information on these reports, visit http://www.ij.org/citystudies.
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