Barriers to Entrepreneurship: How Government Undermines Economic Opportunity
by Naomi Lopez on 07/15/1999
20 Pages
- Among lawmakers today there is no shortage of self-congratulation for a robust economy.
Yet many of these same lawmakers are simultaneously promoting an expansion
of government policies that hinder economic growth and economic opportunity. The
unchecked proliferation of federal, state, and local tax and regulatory requirements is
impeding new business formation and business expansion across the nation. Even the
well-intentioned government-sponsored programs that aim to spur business formation
and economic development are destroying economic opportunity for our nation’s
families.
Nowhere is the impact of these counter-productive government policies more evident and
far-reaching than in the area of small business formation and expansion. Small businesses,
which are responsible for the vast majority of new jobs in our nation’s economy, are the
first casualties of these counter-productive government policies. The result is that job creation,
economic mobility, and economic expansion are stifled.
There is broad consensus among labor analysts that the vast majority of job creation
occurs in small business. Even if one attributes other factors (such as demographics,
technology, and consumers’ spending patterns) as the most important determinants
in job creation, there is no doubt that almost all new job creation occurs in firms
with fewer than 100 employees. Removing obstacles and reducing the regulatory and
tax burdens on small business could have a substantial, positive impact on the ability
of small business to facilitate job creation.
In the next century, America’s economic growth will heavily rely on the growth of new,
smaller, technology-based firms that retain an innovative advantage over larger firms. Recent
immigrants and low-skilled workers frequently begin employment in small firms or
home-based businesses where they gain valuable experience that provides upward mobility
and, in the case of immigrants, assists in the assimilation process.
It is easy to overlook the detrimental effects of government regulation and taxation
on our nation’s entrepreneur community, especially during this period of sustained
economic growth. Yet, mounting evidence suggests that small firms and entrepreneurs
are critical for continued economic prosperity.
While government spending, regulations, and taxes may not create an easily observable
detriment to small business, especially in times of economic expansion, there are
opportunity costs associated with these policies. Policymakers should realize that
there is always a need for positive policy change and that money directed to taxation,
for example, is not available for private investment which is critical to business formation
and job creation.
This strong economy offers an ideal opportunity for free-market advocates and small
business proponents to re-examine government policy and offer alternatives for reform.
Unleashing our nation’s entrepreneurial potential will have not only positive,
long-term consequences on the economy, it will likely extend the current recovery
and diminish the severity of any future economic downturns.
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