Small Business

Small Businesses Win Some Regulatory Relief

A few of our more perceptive government officials seem to realize they've been choking off entrepreneurship.


Christmas has come and gone, but anybody struggling to keep a small business afloat or pondering an entrepreneurial venture might be digging under the desiccated blue spruce (take it out, already) for a missed present or two. The good news is that, as tough as politicians make it to launch your own firm, they've recently gifted us with a bit of relief from their depredations—and more may be on the way.

At the moment, starting a business isn't exactly a growth industry. "[T]otal entrepreneurial activity (TEA) in the United States declined by two percentage points to 12 percent in 2015," according to the latest Global Entrepreneurship Monitor, sponsored by Babson College and Baruch College. And yeah, it's all in startups—"fewer people were entering entrepreneurship in 2015." The report adds.

The Census Bureau agrees, putting new business creation at nearly a 40-year low. "The number of jobs created by establishments less than 1 year old has decreased from 4.1 million in 1994, when this series began, to 3 million in 2015," the Bureau of Labor Statistics chimes in on a less-than-cheerful note.

True the decline comes after several years of decent startup activity, but as the Kauffman Foundation, which monitors entrepreneurial activity, put it, "Despite the large short-term increases, entrepreneurship remains in long-term decline."

There's probably no single reason for the fall-off in startups. Economists and other analysts mention difficulties in gaining financing, increasingly nimble larger companies nabbing opportunities, and the seeming risk-aversion of younger Americans as hurdles for entrepreneurial activity.

But when you ask small business owners themselves, they cite the heavy hand of officialdom as a major concern. "[M]any small-business owners are apparently wary of the current impact of the government on their businesses," Gallup noted in 2014. Specifically, they pointed to "the president's signature healthcare legislation and his push for a federally mandated minimum wage increase as potentially deleterious to business." The two most important problems they faced, small business owners told the National Federation of Independent Business's 2016 annual survey, are taxes and government regulations—a consistent response in recent years.

Keep in mind that, when the economy takes a beating from political meddling, entrepreneurs get the worst of the stomping. As the federal government's own Small Business Administration notes, "small businesses bear a larger burden from regulations than large businesses." Specifically, regulatory compliance costs firms with fewer than 20 staffers 36 percent more per employee than it costs companies cutting paychecks to more than 500 people.

Which sucks.

So it's encouraging when government officials concede that they should, perhaps, step more gently on the throats of the people over whom they rule.

"So-called cottage food laws allow home chefs and bakers to run businesses out of their homes or apartments without needing special licenses or having to comply with food safety regulations," the Washington Post's Erin Bylander noted last month. D.C.'s law, passed in 2013, spares food-related businesses making no more than $25,000 from many regulations. Maryland and Virginia have similar laws in place, though the Old Dominion State mostly dispenses with the revenue cap. Such laws make it easier for culinary entrepreneurs to get a foothold in the market without taking on the huge hassle and expense of dealing with red tape.

Food-policy expert Baylen Linnekin has long championed such regulatory reforms—and more—in the pages of Reason. Last year, he touted victories for "Food Freedom" bills in Colorado and Wyoming that cleared away many of the restrictions on producing, buying, and selling food at the retail level.

Advocates of the Wyoming measure summarize it as saying that, with some exceptions, "any food may be sold as long as there is only a single transaction between a producer and informed end consumer, no middleman allowed. The consumer must be informed that the product is not licensed, inspected or regulated."

Colorado's similar law eases poultry farm restrictions and "exempts from any regulation sales from a home kitchen to the 'informed end consumer' and expands what can be sold under the Colorado Cottage Food law to allow any 'non-potentially hazardous foods' (foods subject to time and temperature control), including pickled fruits and vegetables," according to the Farm-to-Consumer Legal Defense Fund.

Rep. Jared Polis (D-Col.) wants to take reforms national, by easing dairy and meat regulations.

But it's not all raw milk and tamales.

"Today nearly one-quarter of all U.S. workers need a government license to do their jobs," a White House press release warned while announcing grants to organizations working to reduce licensing requirements. And why the concern from government officials not historically averse to requiring their subjects to ask permission before engaging in every conceivable activity?

Well, a year earlier, a report released by the Obama administration conceded that "by one estimate, licensing restrictions cost millions of jobs nationwide and raise consumer expenses by over one hundred billion dollars."

That seems to be enough of a wake-up call to spur officials from both major parties to roll back requirements that people seeking to work as massage therapists, florists, hair dressers, and in a host of other trades undergo expensive and time-consuming training, testing, and licensing. Those requirements not only make it difficult to go into business while raising prices for consumers; they do so without making anybody safer—except existing practitioners from competition, that is. That's right, study after study has found that even the quality of many medical services, such as those provided by opticians, optometrists, and dentists don't see any improvement from occupational licensing requirements.

As a consequence states such as Arizona, Iowa, Kentucky, Oklahoma, and others have moved, or are moving, to roll back restrictions.

Maybe having protected a select flock of rent-seekers from up-and-coming entrepreneurs, some politicians have come to realize that they're at risk of strangling the goose that lays the golden campaign contribution.

And there are other potential improvements in the wind.

President-Elect Trump has promised repeal of Obamacare, that "signature healthcare legislation" that small business owners identified to Gallup as a major concern. As his pick to head the Department of Health and Human Services, he's named Rep. Tom Price (R-Ga.), an advocate of generally market-oriented reforms.

Trump has also promised a vague grab-bag of deregulation that has many small businesses hopeful for an improved environment in which to operate. Likewise, he's vowed tax cuts that could be welcome news.

But then again…

Trump also plans to limit the flow of people and goods across the U.S. border—moves guaranteed to raise costs to businesses and consumers alike, and worsen government intrusions.

"Trump, like many before him, fails to see the beauty of low-cost, high-quality imports," warns Veronique de Rugy of the Mercatus Center. "This is why he wants to impose high tariffs on foreign products, forcing domestic consumers to 'buy American' even if prices are substantially more."

That would mean higher prices not just for finished goods, but for labor and materials required by businesses.

And that Wyoming food freedom law? The U.S. Department of Agriculture is making heavy-handed efforts to impose restrictions on state residents, no matter their efforts at reform.

Also, not all politicians are on board with the idea of making it easier for people to work without government permission—North Carolina lawmakers rejected efforts to roll back occupational licensing requirements.

Hey, these are politicians we're talking about. Breaking things—and people—is almost a calling for them.

But for business owners and would-be entrepreneurs seeking to make a living for themselves by creating jobs and prosperity, there really is some relief—and the potential for more on the way. That's a hopeful sign at a moment when we could use exactly that.