A college student in Washington D.C. wanted to shine shoes on the side for extra cash, but regulations and bureaucracy ended that idea.
It’s a familiar story, and one that stifles burgeoning entrepreneurs across the country.
Tristan Justice, an Ohio native studying at American University, found that to shine shoes part-time, he’d need to spend $1,537 on regulation compliance, permitting, and paperwork, according to International Journal.
But, before he could even operate, it would take up to six months for approval and the proper meetings with the D.C. Department of Consumer and Regulatory Affairs.
“How is government supposed to encourage young people like me with enormous student loans to become new entrepreneurs when they are being bombarded with regulations and fees that they can’t afford from the start?” Justice asked.
The process to start a business in D.C. can get complicated. Occupancy certificates, basic licenses, registrations, and permits can slow down the process. “You should consult with a qualified tax professional and a lawyer to determine your business structure” to determine the business’s “unique tax structure,” the D.C. city government suggests.
“Entrepreneurship—even on the smallest and most banal scale—turns out to be a time-consuming pain in the you-know-what. My personal inconveniences aren’t a big deal, but in the aggregate, the difficulty of launching a business is a problem and it may be a more important one as time goes on,” journalist Matt Yglesias wrote after his experience in establishing a small business in D.C.
While an inconvenience for Justice and Yglesias, it’s not threatening their standard of living. Other possible entrepreneurs, cut off from the opportunity for social and economic advancement, aren’t so lucky. Unnecessary regulations that don’t contribute to public safety and long delays in approval disproportionately affect younger and poorer Americans. That’s seen most prominently in immigrants, who are poorer and less educated on average, but start businesses at higher rates than non-immigrants. Without access to traditional networks in education and business, they take the risk of starting a business. Making that riskier with unnecessary bureaucracy also constricts economic growth that would benefit potential customers and local economies.
Those business restrictions don’t only hamper entrepreneurship – they benefit large, established firms. “The results suggest that a 10 percent increase in the intensity of regulation as measured by the RegData index leads to a statistically significant 0.5 percent decrease in overall firm births. Regulation is also associated with a similar statistically significant decrease among small firms, though it has no statistically significant effect on large firms,” James Bailey and Diana Thomas, economists at Creighton University, wrote in an analysis on regulation and its effects on businesses.
A city, or state’s, tax climate can stifle entrepreneurial activity, too. D.C. ranks 42nd for its tax climate, according to an analysis by the Tax Foundation. Even if entrepreneurs in the capital city can jump through the hoops of bureaucracy, they’d be better off moving to Virginia (30th) or Maryland (41st) to do business.
“For both new and well-established businesses, the numerous permits and licenses that must be obtained and the fees paid are the true indication of our city’s cumbersome, bureaucratic processes,” at-large D.C. City Councilmember David Grosso wrote in The Washington Post. “If the District is as business-friendly as it claims, then it must look inward to find genuine ways to reform practices and procedures.”
Most entrepreneurs don’t navigate through a minefield of restrictions like D.C. residents, but the city is symbolic of the squeeze large cities place on entrepreneurial activity. For economic growth and a society of opportunity, lawmakers across the country need to confront the reality of unnecessary business restrictions.
