Deregulation Good for Mom-and-Pop Shops? - TribPapers

Deregulation Good for Mom-and-Pop Shops?

Chris Edwards of the Cato Institute specializes in identifying excess in government budgeting. Screenshot from Cato website.

Asheville – Even right-wing news outlets today imply in their messaging that it is the proper role of the government to create a strong economy. This not only runs counter to the original intent of the Founders, but the narrative obstructs its purported goal. That is, until recently, conventional wisdom taught us that strong economies were the result of giving all minds a say in how to care for their own pro-social interests without government meddling. Autocratic, communist regimes, by contrast, were portrayed in developed Western countries as using their power to make all their subjects equally miserable.

If government officials wish to deliver on their campaign promises to promote economic recovery, one way to do this without raising taxes too much would be to deregulate. This would be anathema to progressives who justifiably remain rankled by anecdote after anecdote of industrial fat cats paying no taxes, getting huge “economic development incentives,” writing their own laws to marginalize lateral entry into their markets, perpetrating fraud, and more. Adhering to this widespread worldview, however, conflates corporate cronyism with free markets. The latter prohibit the government from interacting with the economy, inasmuch as practicable; the former continually generate corroborating evidence that monopolies don’t persist without corporate welfare.

So, why should mom-and-pop shops be penalized because huge conglomerates wish to pollute the air and water or totally whiz their way around any tax payments whatsoever? Over a year ago, Chris Edwards of the Cato Institute wrote some policy papers with recommendations for economic recovery. He was aware that business startup rates had been in decline for forty years before COVID forced and enforced closings of unessential businesses, lower building capacities, investments in compliance measures, supply chain disruptions, and widespread fear of being out in public. “By the end of 2020,” reported Edwards, “small business revenues and the number of small businesses open were down about 30 percent from a year earlier.”

“That is troubling,” wrote Edwards, “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.” He added, “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.”

Some entrepreneurs pivoted to capitalize on the mask, disinfectant, wipe, and screen scene, but that got old fast. Still, with an economy leaning toward service industries and with IT eliminating drudgework, ceteris paribus, it should be easier and less expensive to start a new business these days. Instead, statistics compiled by economists like Steve Davis show an economy that is losing dynamism. One reason, Morgan Stanley fund manager Ruchir Sharma observed, was that between 2000 and the COVID shutdown, the fraction of publicly-traded companies that are “zombie” firms, or businesses that can’t pay off their debt, many of which are propped up by government subsidies, grew from “just a few percent” to 19 percent. These firms “lower the productivity of rival companies—and block the entry of new companies—by raising labor costs and making it difficult to attract capital.”
Reasons why the numbers of young entrepreneurs are waning are legion and include student loan debt and housing prices, which are preventing them from financing startups. They also include licensing laws for activities that, from most perspectives, do not pose threats to public health and safety. In fact, Edwards reported that a regulatory reform team under former Chicago Mayor Rahm Emanuel found “many licenses and permits were imposed simply for the government to track information on people… that is a dubious purpose for government intervention in a free society.” 
Ken Grossman, cofounder of Sierra Nevada Brewing Company, is just one example of somebody who reportedly started his business illegally in his home. Edwards explains that brewing is an art that is better perfected with years of practice. Whereas Edwards advocates for the legalization and minimal regulation of vice industries, he accepts that other, less controversial businesses, like hair braiding, can be beneficial without, “slow and complex permitting, licensing, and zoning bureaucracies,” which, he says, encourage corruption. Not unexpectedly, tough laws against productivity have often forced talented, low-income people to work the black market in order to help neighbors with things like appliance and equipment repair.

Edwards wrote, “Local governments should liberalize rules for home-based businesses, which are increasingly attractive given the changes in technology and society. Home-based businesses employ millions of people and have been a low-cost incubator for many successful companies. They add value to the economy and should not be treated as a nuisance to communities but instead seen as a benefit.” Home industries serve neighbors; allow entrepreneurs to remain caregivers for young people and the elderly; reduce automobile traffic and emissions; save commuting time for sellers and buyers; and even reduce the need for new buildings. Furthermore, a lot of modern work-from-home businesses are low-impact, and homeowners, going back to traditional American values, should retain the right to use their homes as they see fit, so long as they don’t infringe on the inalienable rights of enjoyment of their neighbors.

To illustrate, Edwards gave examples of cottage food laws that have imposed insurmountable market entry barriers on wannabe cooks before they even have a chance to test-market their products. That is to say, in some places, home cooks would have to build a $15,000 commercial-grade kitchen exclusively for their business and procure any requisite zoning variances and inspections—or rent one for $20/hour—just to sell an occasional birthday cake. Some states even limit what kinds of foods can be made at home for sale and cap the chef’s annual income.

At the state level, Edwards suggested that governments should consider eliminating licenses not required by other states. They might also consider jettisoning certification processes to the private sector for voluntary opt-in by producers and consumers. If they’re unwilling to go that far, they could at least reduce fees and bureaucratic delays. Particularly stymieing for startups are labor laws like living wage requirements and mandatory paid leave. It should go without saying by now, but it doesn’t, that in the startup phase, entrepreneurs typically need somebody to do a little work here and there for extra cash, not somebody looking for full-time employment with benefits.