企业家与法规：消除州和地方对新企业的壁垒.docx

May 5, 20211 Number 916Entrepreneurs and RegulationsRemoving State and Local Barriers to New BusinessesBy Chris EdwardsEXECUTIVE SUMMARYThe U.S. economy was damaged by the COVID-19 crisis in 2020. Output plunged and unemployment spiked. Mandated shutdowns, social distancing, and altered consumption patterns resulted in many businesses closing permanently and laying off workers.To replace lost jobs and incomes, the economy needs entrepreneurs to fill the void with business startups. During the economic downturn a decade ago, the business startup rate fell and never fully recovered, which contributed to a slow recovery Even before that, the startup rate had been trending down since the 1980s. That is troubling because startups play crucial roles in the economy They create most net new jobs. They are a key source of innovation because new products are often pioneered by new companies. And they challenge dominant firms, which helps to restrain prices and expand consumer choices.This report argues that state and local policymakers should slash regulatory barriers to startup businesses. State governments should repeal certificate of need requirements and minimum wage laws, liberalize occupational licensing and restaurant alcohol licensing, and fully legalize marijuana and hemp businesses. Local governments should reduce and simplify permitting and licensing rules for new businesses. They should also liberalize zoning rules for home-based businesses.The report presents an Entrepreneur Regulatory Barriers Index, which uses 17 variables to rank the states on their barriers to startup businesses. The results suggest that the lowest regulatory barriers are in Georgia, South Dakota, North Dakota, Colorado, New Hampshire, Kansas, Indiana, Wyoming, Utah, and Ohio, while the highest barriers are in Rhode Island, Oregon, Nevada, New YDrk, West Virginia, Washington, Hawaii, California, New Jersey and Connecticut.At the federal level, the Biden administration is likely to increase regulations on businesses and raise taxes, which would undermine entrepreneurial activity But state and local governments should move in the opposite direction and repeal unneeded barriers to new enterprises and spur economic growth.Chris Edwards is director of tax policy studies at the Cato Institute and editor of DownsizingGovenvnent.org.10/In health care, certificate- of-need laws are imposed today in 34 states. The laws block new investments in hospitals.creative destruction, then constraints on their emergence should have a chilling effect on incumbents and mute the disciplinary effects of competition, with older firms more likely to be lazy and less capable of enhancing productivity86Indeed, that is what their empirical analysis shows is happening. They conclude that “entry regulation has costs over and above the direct costs of compliance and enforcement, that is, the cost of slower growth in productivity and output.87Studies have attempted to measure these broader growth costs of regulation. A 2006 study by Simeon Djankov and colleagues examined economic growth from 1993 to 2002 for 135 countries and found that countries that had a better regulatory climate based on the World Bank's "doing business“ indicators tended to grow faster.88Economists John Dawson and John Seater used the growth in the number of pages of federal regulations over the 1949-2005 period to estimate the effects of regulation on the macroeconomy;89 They found that rising federal regulation has “caused substantial reductions in the growth rates of both output and total factor productivity"8Similarly economist Bentley Co仔ey and coauthors modeled how rising volumes of federal regulations appear to have slowed U.S. economic growth.91 They found that if federal regulations had stayed fixed at the lower 1980 level, output would have been nearly 25 percent larger by 2012. These sorts of estimates are rough and the results should be treated with caution. But such results suggest that regulatory burdens can create large negative effects on living standards, not just i 92 some extra paperwork.STATE BARRIERS TO STARTUPSAll three levels of American government impose regulations on businesses, including regulations that create barriers to startups. This section focuses on selected state barriers to startups and the next section focuses on local barriers.Regulatory barriers to startups differ between the states in at least three ways. First, the legal obstacles to opening businesses differ. Second, the costs of opening and running businesses differ because of regulatory mandates. Third, some states bar entrepreneurs from offering some products altogether products that are legal elsewhere in the countryLegal ObstaclesState governments impose certificate of need (CON) laws and occupational licensing rules. Both forms of restriction create legal obstacles to entrepreneurs seeking to open businesses.Certificate of need or certificate of necessity laws require that businesses wanting to enter certain industries receive approval from a regulatory authority A business must prove that there is a public need for its product or investment, which is an ill-defined metric and gives arbitrary power to authorities to deny entry State CON authorities are often under the sway of incumbent firms, which tend to disfavor added competition.Certificate of need laws were originally imposed on the railroad industry in the 19th century Tbday they are imposed in health care, utilities, pipelines, moving services, and taxi services.93 In some cases, it is disturbingly easy for existing firms and their allies in government to keep new firms out of an industry for no sound reason.94In health care, CON laws are imposed today in 34 states.93 The laws block new investments in hospitals, clinics, surgery centers, nursing homes, ambulance services, imaging machines, and other sorts of facilities and equipment. New Yjrk state imposed the first state CON law on health care in 1964. Soon, 48 other states followed suit with encouragement and funding from the federal government.96These laws were justified by the faulty idea that restricting supply by blocking entrants would reduce prices. In fact, experience over the decades has shown that CON1111laws undermine investment and innovation, while generally raising prices. The American Medical Association has criticized CON laws, saying that they fail to contain costs, impede patient choice, are anti-competitive, are susceptible to abuse, do not improve health care quality and ''represent failed public policy'", Economist Matt Mitchell reviewed academic studies that compare health care performance in states with and without CON laws.98 The findings suggest that CON laws tend to reduce access to care and increase costs.The Federal Trade Commission (FTC) has examined CON laws. Maureen Ohlhausen, the head of the agency in 2015, concluded that they “stand out as an example of regulation that squelches the beneficial effects of competition in health care markets without delivering valuable public benefits in return.,/99 She noted, By deterring new entry and creating artificial scarcity CON laws likely are increasing health care prices.,10° For these reasons, she said, z/there has been a lengthy bipartisan consensus at the FTC that state CON laws should be repealed/7101In Vermont, entrepreneur Amy Cooper assembled financing and proposed to the government's Green Mountain Care Board in 2015 to open a surgery center focusing on five specialties.102 After years of board deliberations, and after overcoming objections by incumbent providers in the state, Cooper's facility was finally approved but with tight restrictions. By then, however; conditions had changed, and Cooper sought to add different services to those she originally envisioned. That led to new rounds of haggling with the state board. Cooper took legal action against the board but ultimately lost in the state supreme court in 2O2O.103 Cooper's facility finally opened after $11 million in investment, but the delays wasted valuable resources and the restrictions imposed by the board may undermine the facility's success going forward.The Vermont board that restricted Amy Cooper's facility claimed that it was acting to "control costs, but Cooper aims to reduce costs for procedures such as eye surgery that are in short supply in the state.104 CON laws undermine entrepreneurial efforts such as Cooper's, and experience shows they harm health care consumers. More than a dozen states have repealed their health care CON laws since the 1980s, and many states relaxed their laws temporarily during the COVID-19 pandemic. All states should repeal these illogical laws permanentlyAnother state legal obstacle to startups is occupational licensing. State governments define the education, training, and testing needed for entry into many occupationseverything from doctors to travel agents, bartenders, florists, makeup artists, tour guides, animal trainers, hair braiders, manicurists, athletic trainers, bartenders, auctioneers, massage therapists, and many others.105 Many licensed occupations are populated by small businesses, so licensing restrictions are restrictions on entrepreneurship.The share of U.S. jobs requiring an occupational license increased from 5 percent in the 1950s to 22 percent in 2020.106 The number of occupations requiring a license in at least one state has risen from about 30 in 1920 to about 1,100 today107 The share of workers needing licenses varies from 14 percent in Georgia to 27 percent in Nevada.108 The states also differ regarding the costs and training required for needed licenses.The rationale for occupational licensing is that it protects consumer health and safety But economist Morris Kleiner reviewed academic studies and found there zzis little evidence to show that the licensing of many di仔erent occupations has improved the quality of services received by consumers.,1()9 A report by the Obama administration concluded that "most research does not find that licensing improves quality or public health and safety/'"。A report by the Organisation for Economic Co-operation and Development found zzthere is very little empirical evidence of a positive link between the stringency of regulations and the quality of services.""The share ofUS.jobs requiring an occupational license increased from 5 percent in the 1950s to 22 percent in 2020.The large state differences in licensing requirements for many occupations suggest that1212The real motive behind occupational licensing inmany cases is to reduce competi-the rules are often not based on a rational analy- sis of health or safety Athletic trainers are not licensed in California, but in Nevada they must have a college degree, pass an exam, and pay $666 for initial licensing and $150 for annual renewals. Auctioneers are not licensed in about half the states, but in North Carolina they must have a college degree, pass an exam, and pay $450 for initial licensing and $250 for annual renewals. Heating, ventilation, and air conditioning (HVAC) contractors are not licensed in more than a dozen states, but in Nevada they must pass an exam and pay $1,135 for initial licensing and $600 for renewals every two years.The real motive behind occupational licensing in many cases is to reduce competition. The state boards that enforce licensing rules in many states include members of the profession, who have an incentive to erect barriers to keep newcomers out. A report by the Federal Trade Commission found that while occupational licensing can sometimes serve a beneficial role in health and safety it can also reduce labor supply restrain competition, and raise prices.113Occupational licensing imposes numerous costs.114 The Obama administration report concluded, zzThere is evidence licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across state lines."" Economist Stephen Slivinski found that licensing undermines entrepreneurship. In particular; those states that require licenses for a larger number of low-income occupations have lower rates of low-income entrepreneur ship.116How should policymakers reform occupational licensing? In many cases, licensing should be repealed, especially when there are no substantial health and safety issues. In 2020, Florida repealed licensing for interior designers, nail technicians, hair braiders, and boxing announcers. Policymakers should perform cost-benefit analyses of all licensing requirements and repeal those that do not generate net benefits. But more simply states should repeal licensing for occupations that are not licensed in numerous other states: Florida, for example, knew that it was okay to repeal licensing for interior designers because most states do not have such rules.Short of full repeal, states should open their workforces to individuals licensed in other states, an approach taken in recent Arizona reforms.118 Finally states should reduce the costs of needed licenses and renewals, and they should replace mandatory licensing with voluntary certification when feasible.Mandated CostsA second way that state regulations affect startups is to raise the costs of opening and running businesses. Minimum wage regulations are a good example. As noted, smaller firms are hit harder by these rules because they tend to pay lower wages. Roughly half of minimum-wage workers are employed at busi- *1 1 Q nesses with fewer than 100 employees.Minimum wages are set at the federal minimum of $7.25 per hour in 21 states, but they are set higher in 29 states and in dozens of cit- ies and counties. In the first few months of 2021, 25 states and dozens of cities and counties increased their minimum wage rates.121 About 60 percent of all workers live in states where the minimum wage is higher than the federal rate.Minimum wages are an important cost factor for industries that employ entry-level workers, and the COVID-19 pandemic particularly damaged these industries. A Bureau of Labor Statistics analysis found that "occupations with lower wages are more common in the shutdown sectors than elsewhere in the economy . . . Consequently shutdown policies disproportionately affect workers in lower paying jobs/'123In a 2019 study economists Sudheer Chava, Alexander OettI, and Manpreet Singh examined how minimum wage laws affect small business finances.124 They used a large dataset of small business finances covering the years 1989 to 2013 and examined variations in state minimum wages. They found that increases in the minimum wage rate correlate with z/lower1313bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate for small businesses."The escalat