I want to return focus to the question I asked in this post, what measures would increase the rate of new business formation? As I wrote in the post, I’m skeptical that simply increasing the amount of consumer spending will do that. As an illustration of why that might be think about how many jobs would be created by a 10% increase in the volume of purchases at Amazon.com? My guess: none at Amazon.com although some Chinese manufacturers might need a few more employees.
I’ve given mine: reduce the cost of employment for new companies. One commenter suggested reducing regulations. I don’t disagree with that although suggestions of specific regulations would be nice. He also implied a moratorium on new regulations, i.e. reducing regime uncertainty.
Okay, I’ll make another suggestion: eliminate FICA, FUTA, and the corporate income tax permanently including their reporting requirement and pay the benefits of the Social Security system and federal unemployment benefits from the general fund. We’re already moving in that direction and there’s a decent body of scholarship that suggests that permanent measures have significantly more benefit than temporary ones.
Other suggestions? I want to concentrate on brainstorming rather than on criticizing the measures that are suggested.
In general I think we’re talking about measures that alter the balance between perceived risk and expected reward. Either the perceived risk can be reduced or the expected reward can be increased.
1) Suspend ADA compliance for the first ten years for a new business.
2) ELiminate the corporate income tax. I know you said this but this has been a long time favorite for me. Probably minimal effect on new businesses, but still worth it.
3) Eliminate rent control. Should lead to more housing and apartment construction.
4) Eliminate the connection between employment and health care. (Do these have to be realistic ideas?)
5) Accelerate the establishment of exchanges. Let new small businesses buy at the lower rates the larger businesses get.
6) Reduce (or eliminate) the number of state health insurance mandates.
7) For professions that require licensing, eliminate state by state licensing. Make it national.
8) Eliminate unemployment insurance and workers comp for the first two years of a new business.
9) This last is kind of vague. The regs that most affect me on a day to day basis, and a number of small business people I know, are state and local ones. The local petty politics can be brutal. The state inspectors are often the worst. Parking rules, zoning laws, garbage regs, building codes and security requirements often seem pretty arbitrary.
Steve
Our lists are not dissimilar. I think the exemptions should be longer—5, 8, or 10 years.
I would add that a wholly-owned subsidiary of an existing business is not a new business.
1) Make entrepreneurship classes a part of all high school curricula and not just as an elective. Require one year, offer a second year for those more interested. You want small businessmen? Start growing some.
1A) Eliminate age requirements for business formation. I know of a 16 year-old making 60k a year doing somewhat unethical but not illegal websites. He has to use his parents as a cut-out. I know a 15 year-old (mine) doing more ethical work who likewise could be running a business.
2) If we can be unrealistic: eliminate states altogether. As Steve suggests above, there goes a huge percentage of your bureaucracy and states are a ridiculous anachronism. Suddenly all professionals are licensed in every state.
3) Consolidate all business-to-government interactions in a single agency. Why are the IRS, the state tax bureau, the unemployment people, various regulatory agencies etc, different people? Isn’t there an app for this?
4) Obviously as suggested by Steve separate health insurance from employment. It should be individual, universal, portable.
5) Some sort of system of employee sharing. If I need 10 hours of an assistant’s time, and someone else needs 15 hours and someone else needs 12, is there a simple way for us to pay and account for the single employee, rather than three payrolls, three insurance policies, etc?
If healthcare and retirement were detached from employment, that reduces the significance of full-time employment which I think is a good thing because of the additional flexibility it provides. However, I would think that, wouldn’t I? I’ve been more or less self-employed for more than 30 years.
One commenter suggested reducing regulations.
I’m not interested so much in reducing regulations as in streamlining the processes. That MAY mean reducing them overall, but maybe not. Enviro-regs alone produce a dense quilt that can impede just about anything that isn’t just a shop* set up in an existing location. This would require co-ordinated efforts at the federal, state and local level. You know, getting the government types to actually try and make THERE work flows more efficient. (Yeah, we need an Alexander for that.) Just make it easier for people to find out what they need to do and to get the necessary permitting. (My wife used to work at a firm that specialized in enviro-reg-required work.)
* By which I mean a store that sells stuff, as opposed to a shop that makes stuff.
I would also suggest reforming (and simplifying) income taxes, as lots of small businesses start out as very small operations that hit individuals 1040s. Tax reform in badly needed across the whole spectrum.
I would add that a wholly-owned subsidiary of an existing business is not a new business.
Agreed. But what happens if a company sets up a joint venture? The company owns 999,999 shares, and some schmuck somewhere owns the 1,000,000th share? More realistically, what about several companies setting up a new company under joint ownership to produce something they all need? In a real sense this wouldn’t be any different from the wholly owned subsidiary problem.
Michael,
Disagree very much with #2. #5 would bring actual hosanna’s all around. Also agree completely that employers need to get out of the healthcare business.
Here are a few more:
– Simplify the tax code so that small businesses and individuals don’t need to hire an accountant and lawyer to be in compliance. Put turbotax out of business. Fund things like workman’s comp and unemployment insurance out of general revenues and consider federalizing these benefits.
– Rationalize patents. Who can make a play for something new on the internet when Google can sue you for patent infringement?
-End government subsidies to industries.
-Rationalize and simplify tariff’s. Get rid of crap like this.
Andy:
I will carry on my lonely and doomed crusade against states. (Ice is writing his own constitution, so maybe he’ll see the light.)
Agree with your other points.
Put turbotax out of business.
I seem to recall Schuler stating years ago that the federal government should have implemented their own tax software before TurboTax even came into business, though I am probably mis-remembering details.
(Ice is writing his own constitution, so maybe he’ll see the light.)
I am violently opposed to the elimination of the states.
Despite the need for certain efficiencies in government, other inefficiencies are much desired. Anything to keep government from totally crushing the citizens.
Consolidation is not necessarily a good thing. You introduce a single point of failure. Combining all US intelligence into one data stream seemed like a good idea until one Army Private with a thumbdrive showed up.
@Michael Reynolds
If we can be unrealistic: eliminate states altogether. …
What will happen when the retarded Republicans are in charge, and the country is run like Texas or Mississippi? Presently, California provides respite from the retards. Jus’ sayin’.
True. Although we apparently just approved a high speed rail link between Bakersfield and Madera, so I’m not sure how smart we are. Bakersfield and Madera are both places you want to get the hell out of at high speed, but not to go to either place, or anywhere in between.
Nationalize all environmental, building, health and business licensing codes, statues and regulations. Local governments are the primary impediments to new small-business formation, period. Eliminate the cronyism that pervades county governments and city councils as they favor one dinky hardware store over another.
Wait a minute, Ben. Building codes that are reasonable for western California are overly strenuous for Cody, Wyoming or El Paso, Texas.
Environmental standards, too, should be tailored to a local environment. Standards for the Big Thicket in Texas should be different from those for Wichita Falls.
Nationalizing business codes makes more sense. Or health codes. or licensing.
Ben,
There is already a model building code upon which almost all codes are based. It makes no sense to have a one-size-fits all code since requirements are vary greatly by region and even locality.
Even the other stuff needs local variation. I think we could do with more national standards – a higher floor for common regulation – but there always should be room to allow for addressing regional and local differences.
Yeah, let’s put up slab and block buildings all over the LA and SF areas of California. What could possibly go wrong?
@Ben Wolf
… Local governments are the primary impediments to new small-business formation, period. …
Presently, a small business can move to a more friendly location. While this is less than optimal, it at least limits the ability of big business to rig the system.
Eliminate the cronyism that pervades county governments and city councils as they favor one dinky hardware store over another.
And when was the last time a county government favored a dinky hardware store over Lowes or Home Depot?
In places like Marin? All the time. San Rafael (the working class ghetto of Marin County) has had a multi-year fight just to get approval for a Target. San Rafael doesn’t have a lot going on, the downtown is overrun with street people, the businesses Target might threaten are pretty low-rent. And it was apparently a huge long battle to get a CVS here in Tiburon. It’s the only chain we have, of any type, literally, and it’s only because the average age here is 104 and they need their meds.
Personally, I think we could use a Starbucks and a Wendy’s, but I’m just a renter here. I don’t even belong to the yacht club.
Michael, you wilfully moved to Marin and you’re bitching about things beingt too expensive? I was going to ask “Where y’all come from” but I know that already.
Janis:
Why I live here: http://i.imgur.com/7QL3E.jpg I work out on my deck looking at that. Can’t stand the old fart population, don’t even like the house, but I love the view.
I could do that. I don’t think I’d bitch about prices, though.
I don’t bitch about the prices, I just want a Wendy’s.
For what? It didn’t go over here at all.
Have to agree with the Wendy’s. Now that I end up driving 100-200 miles sometimes when I am on call, I get stuck buying fast food and eating it in the car driving elsewhere. Plus, chocolate Frosties are the best.
Steve
Wow, nice view.
Wendy’s is good when compared with, say, McDonald’s or Burger King. Here in the Midwest there are significantly better alternatives for fast food burgers: Culver’s and Steak N Shake.
Andy:
That’s why I’ve been pushing for something in regulations analogous to the uniform commercial code. However, I think that Michael would be disappointed with the results if states were actually abolished. Theoretically, it might streamline things. In practice, it would add one or more levels of bureaucracy that don’t exist now and make things that are merely difficult now intractable. Small and, importantly, new businesses wouldn’t be able to play on that field.
It would be delightful for the big guys but it would, I fear, mean the end of new jobs.
If you didnt have states, you would still need smaller units for management. While I would not favor eliminating the states per se, I would support reorganization so that states were closer to each other in population. The low population states have way too much clout per capita in the Senate and the House.
Steve
The problem, of course, is that the US is a political union and the states are still sovereign entities. The individual states have no interest in changing the status quo. California doesn’t want to be broken up and by the same token the Wyomings of the country don’t want to be be forced together. And really, they can’t be forced together.
Michael
Am I to assume, then, that you are a “water guy?”
Andy
Regarding CA: there has been talk for years about people wanting to break the large area of CA into two states, as the north and southern parts are different from each other. Also, the north has long been angry about sharing water with the southern portion.
Also, I disagree about eliminating the states. This country is demographically textured, which is reflected within the perimeters of each and every state. As much as there are people who would like a homogenized country for political expediency, it would not work.
Sometimes, it seems to me that there are those who yearn for a Stepford Wives country — one where there is a level line of mediocrity in the populace, defined as ‘fairness’ and ‘sameness,’ while others look at it as a human strip-mining of people’s motivation, creativity and individual uniqueness.
Drew:
I like seeing the water and I feel jumpy when I live in a place more than an hour’s drive from an ocean or at least a Great Lake. But I don’t actually engage with the water, I just like to know it’s there.
Reynolds, I cannot imagine some rinky-dink business being able to put up a fuss like that. But then I live in Florida, where developers have owned the politicians since WWII. (Maybe longer, but pre-WWII there wasn’t that much interest in Florida except for the occassional land-scam.)
…
On another front, it has been a while (here in Florida) since Steak -n- Shake was clearly better than Wendy’s. When I was a kid, though, SnS was far and away the best.
Need to take a look at where we’re overprotecting incumbents. Big companies crowd out the smaller ones. The copyright industry – with increased law enforcement involvement in their protection and increased length of service – is the one that comes most quickly to mind.
On the regulatory side, I don’t have a good fix for this, but it bothers me that regulations are sometimes written by people who have no idea how to meet them – see the biofuel regulations that have hit the blogs recently, for example. I can’t come up with a way to codify a rule that doesn’t have unintended consequences.
+1 for reducing tax burden. I worked in a “business intelligence” shop for a large telecommunications company, which theoretically existed to give the business the information it needed to make smart decisions – in practice, a lot of the effort we put in went to legal, regulatory, and tax reporting. The huge accounting system we put in, the databases, etc. didn’t give us competitive advantage in any way that a customer would recognize – they were just a money sink. In some cases, we needed to report by county, or tax district, using different forms for each area.
On the idea of more entrepreneurship classes — I’m sure there’s a way to make it work, but I’d be concerned about things that are mandatory in public school. They tend to get watered down quickly. If you want make more entrepreneurs, focus on the incentives that make kids want to be one.
Most of the ideas that folks have end up requiring either Congress or the Executive Branch to start doing smart things that lead toward growth. I’m not trying to be overly cynical, but that seems to me to be a tall order.
Right now, they’re incented towards keeping a slightly instable status quo. Keep the people who helped them get elected in power, with just enough chance that they could lose to keep the donors interested. They aren’t incented to help people compete with the status quo. To the extent that they want economic success, they only care about the short term.
If you want the government to help find incentives to help the people grow businesses, I think you need to find a way to incent the people in the government, first – make their cronyism work for you, instead of against you.
Just brainstorming – not fully formed – but take half of the Congressional pensions, and make it dependent on some long-term financial statistics, including a factor based on new company growth.
gawaine:
An alternative way of looking at it is that I’m asking a more general question: what sort of mindset, what attitudes would Congressional representatives who truly wanted the economy to grow need to have? You’ve answered in the negative: “they’re incented towards keeping a slightly instable status quo.”
I think the affirmative answer is that we need people who have more confidence in the private sector and a disinclination to micro-manage. That’s almost exactly the opposite of the type of person who seeks federal office these days.
I think the affirmative answer is that we need people who have more confidence in the private sector and a disinclination to micro-manage. That’s almost exactly the opposite of the type of person who seeks federal office these days.
Which is why I am of the opinion that the entire leadership class of the country needs to be replaced.
I will note that no one on this board that might be able to concievably win an election has bothered to put themselves forward for office. I find that instructive too.