Start Up Activity in The US is Down

Posted by Jeff Carter
on September 18th, 2012

One of the great things about the US is it was a nation founded by entrepreneurs. Entrepreneurs think differently. They create value. They solve problems. They are collaborative. They are optimistic, because to go through what many of them go through you have to have a great positive attitude.

But, in the last four years, entrepreneurial activity in the US is down.

Generally when people think about start ups, they think internet companies that get big. High tech, cutting edge ideas that eventually IPO on the nation’s stock exchanges. ($NDAQ, $NYSE) But, less than 1% of all companies that ever start up and receive funding from angels and venture capitalists ever go public. We think in those terms because they get all the publicity.

Government regulations all over America are killing the start up dreams of our citizens.

Suppose you and your family are sitting around the kitchen table and have an idea for a business. You decide you want to open a donut shop, a hair braiding salon, nail salon, or similar business. The family might think all they have to do is get the right materials, advertise a little and start up their business. If it works, the business expands, if not-do something else. Not so fast.

Governments are over bearing when it comes to starting up businesses like this. You have to buy a business license, sometimes from states and cities. In 2010, a report recommended changes in the state of Illinois. Illinois is currently 48th in start up activity in the US. None of these changes have been made, but here they are:

The report recommends:

Chicagoans should no longer have to beg for an alderman’s permission to rehab a storefront or to hang a sign. Chicago should be ruled by a “rule of law,” where once individuals meet objective and well-established requirements, they should be free to pursue their occupation, rehab their building and communicate truthfully with potential customers. What Chicago has now is a “rule of men,” where aldermen can arbitrarily wield their power and block their constituents’ pursuit of an honest living.

The city should eliminate all but health-and safety-specific education requirements for barbers, braiders and nail techs. The city should also cancel continuing education requirements for these trades and allow customers—rather than a panel of insiders—to decide who is qualified to pursue these occupations.

The city and the state should eliminate so-called “titling acts” and allow entrepreneurs to truthfully tell others what they do for a living. Right now, government regulations ban landscape architects, interior designers and engineers from using those titles unless they first get the government’s blessing. Such anti-competitive restrictions are put in place at the behest of industry lobbyists who want to use government force to keep out competition.

Illinois must overhaul its law licensing household goods movers so nothing more is required to get into business than registration with the state and providing proof of insurance. The state should no longer require companies to demonstrate that they won’t compete with existing service providers—a requirement that helps only existing businesses while harming consumers and would-be entrepreneurs. Furthermore, consumers—and not the government—can best decide if a business is “necessary.”

Entrepreneurs (like home repair people, florists and taxi drivers) who use vehicles to serve customers should be allowed to park on the streets of Chicago. They are banned from doing so.
Illinois should make it easier for individuals to start limited liability companies by no longer tripling the filing fees for these legal formations compared to corporations.

Look closely at those reforms and you can distill it down to one idea; central planning vs decentralization. That’s the crux of the debate between Obama and Romney today. Obama is for big government. Romney isn’t.

Central planning never works to have sustained economic development. People are attracted to the speed and organization of central planning. But decentralized market based systems work better. Put the decision making in the hands of the people at the end of the chain and you get a more lithe system that responds.

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