In 1961, economist Benjamin Chinitz argued that New York was more resilient than Pittsburgh because New York possessed a culture of entrepreneurship, originally inculcated by the garment industry, where anyone with a good idea and a couple of sewing machines could start a business. By contrast, gritty cities like Pittsburgh, dominated by large smokestack industries that tended to snuff out small-scale entrepreneurial activity, eventually faced a crisis when those industries grew less profitable, and the local economy struggled to adjust.
Love for small business is one of the few universals in American politics. In a 2018 Gallup poll, just 56 percent of Americans viewed capitalism positively; but 92 percent had a positive view of small business, and 86 percent viewed entrepreneurs positively. Government at all levels has policies intended to help small businesses, but there’s little evidence that these programs are effective — and even when bureaucrats try to help, they impede small-business creation by imposing new regulations. The New York City Business License and Permit index presents a daunting compendium of licenses and certifications that can be required to start a business in the city — such as the Esthetics License (needed if you want to “conduct beauty treatment”) and the Certificate of Fitness for Fire and Emergency Drill Instructor (necessary to “lead fire drills in buildings that do not require a Fire Safety Director”).
Such overregulation represents a second way that the deck gets stacked in the American economy against outsiders. The decline of American entrepreneurship is a discouraging trend of the last 30 years. In 2015, economist John Haltiwanger documented numerous signs of diminished business dynamism in the United States. In the early 1980s, he noted, America’s startup rate exceeded 13 percent, which meant that about one-eighth of all firms had just begun. The startup share fell to 10 percent near the end of the Clinton years and below 8 percent during the Great Recession. While no consensus exists about the causes of this dramatic drop, expanding business regulation is a plausible candidate.
Edward L. Glaeser, “How to Fix American Capitalism”, City Journal, 2020-12-13.
April 3, 2021
QotD: When governments try to “help” small businesses
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