Cities end up giving subsidies to the Walmarts of the world while tying up the Sam Waltons in red tape.
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Too often, discussions about regulatory reform are cast as a fight between unscrupulous corporate executives and selfless activists or civil servants risking everything to stop them. That may make for dramatic movie scripts (and there are a lot of them) but it doesn’t reflect reality.
In the real world, the burden of regulations is often borne by the would-be small business owner who faces barriers such as occupational and business licenses, questionable health regulations, building codes, taxes and fees and paperwork that goes with them. And the bad guys aren’t conniving bureaucrats in city hall, but a patchwork of well-intended requirements built up over time, like the sludge in your basement floor drain.
Those small business owners are vital to our economy. According to the U.S. Bureau of Labor Statistics, small businesses with 249 or fewer employees accounted for 55% of total net job creation over the past 10 years. The Small Business Administration reports that small businesses employ 46% percent of private-sector employees and pay 39% of private-sector payroll.
Local governments should help these entrepreneurs, not hinder them.
Talk to anyone in any city who owns a business, from home builders to bar and restaurant owners to barbers — they all have horror stories about trying to comply with the regulations set before them.
In 2022, the 501(c)(3) nonprofit Institute for Justice published a 20-city study called Barriers to Business, which measured the real-world obstacles to starting a business. Researchers examined local codes, looked through city websites and added up the fees and forms required of entrepreneurs — difficult work and not often done. Other studies have examined more easily measured items such as taxes, numbers of startups being created or opinions of entrepreneurs themselves. But few have taken on the task as thoroughly as the Institute for Justice.
In the part of the Barriers to Business study specific to Raleigh, by found that while the fees for starting a business in Raleigh were low relative to other cities examined, “a barber must complete a combined 59 steps and 17 forms to start a barbershop in Raleigh.” The Institute for Jistice also reports that “the city’s website also does a poor job of explaining the process of starting up with step-by-step guides, creating added confusion for applicants which in turn leads to further delays. Raleigh meets just one out of five one-stop shop criteria.”
The good news: There’s help available for anyone who wants to make improvements. The Institute for Justice recently published its Cities Work Playbook providing a comprehensive guide to reforming local regulations. The goal is to make it cheaper, faster and simpler for entrepreneurs to operate.
The playbook details how people can assess their own business environment and make improvements. This includes working with others to identify the barriers entrepreneurs face, building coalitions to address them, collaborating with local government and generating media attention for the effort.
The irony of all these barriers? None of them are intentional. Cities are eager to have more and better businesses paying taxes and creating jobs, and leaders often set up whole agencies to give taxpayer money away to large businesses in order to lure them in. Yet the small startups, new ideas and product innovators are not only ignored but are squeezed to offset all those giveaways. They don’t have the lawyers and lobbyists to seek carve-outs and subsidies.
Cities should focus less on wooing the Walmarts out there and more on encouraging the next Sam Waltons among them. The Institute for Justice’s City Works Playbook is a great place to start.
Patrick Tuohey is co-founder of Better Cities Project, a 501(c)(3) nonprofit focused on municipal policy solutions, and a senior fellow at the Show-Me Institute, a 501(c)(3) nonprofit dedicated to Missouri state policy work.
