Business growth

HOOD: It’s time to lighten the load of business growth

North Carolina is a growth-friendly place – the best state in which to do business, I hear – yet we continue to burden our job creators with heavy regulatory burdens that discourage capital formation and investment. in our state.

I don’t mean that we haven’t made progress over the past decade. The General Assembly enacted a series of regulatory reforms. Some localities have made it a priority to reduce rules, approval times and other forms of bureaucracy.

When it comes to regulatory burdens, however, we still compare unfavorably to many of our competitors. According to the latest Cato Institute study, North Carolina ranks 26th in regulatory freedom – better than Maryland (47th), New York (48th), New Jersey (49th) and California (50th), sure, but worse than Georgia (7th), South Carolina (13th), Tennessee (16th), and Virginia (18th).

Policymakers, activists and journalists often treat regulation as if it were simply a “big business” concern, but the practical effects extend far beyond corporate boardrooms. While larger companies can certainly incur significant expenses due to environmental, health or safety regulations, compliance costs are much more onerous for smaller companies that lack specialist knowledge or in-house advice. And if they try to “get away with it” to save money and then break the rules, they have a harder time absorbing the resulting legal fees and fines.

Now consider another set of affected parties: people who want to start a new business but cannot obtain the necessary licenses and permits to do so. Charleston Citadel professor Russ Sobel has researched this question extensively. One of his studies found “a clear and strong relationship between states’ economic freedom scores and their levels of net entrepreneurial productivity.”

What happens when overly burdensome regulations prevent business start-ups, expansion and investment? Among the consequences are lower and more unequal incomes among the general population. In a 2022 article published in the European Journal of Political Economy, economists Dustin Chambers and Colin O’Reilly agreed that “regulations disproportionately impact small businesses and stifle entrepreneurship,” examining a broad economic dataset of 50 states from 1997 to 2015. They found that every 10% increase in federal regulation was associated with about a 0.5% increase in income inequality. Applying their findings to North Carolina alone, Chambers and O’Reilly estimated that since 1997, regulations had increased the number of residents living below the poverty line by about 256,000.

The same logic applies to state and local regulations. We need it, of course. The people of North Carolina, for example, deserve clear air and water, and because these are common goods rather than personal goods, some kind of government intervention is needed to protect health. and public safety.

Too often, however, the costs of taxation and regulatory compliance far outweigh any reasonable expectation of public interest. This is why the agencies that make the rules, and the elected officials who authorize them to do so, must apply rigorous cost-benefit tests to any regulatory proposal.

Incidentally, many North Carolina professional licensing laws wouldn’t come close to passing such a test. We rank particularly poorly in this area and in the regulation of alcohol-related businesses (40th in the Cato study in both cases).

Cost-benefit analysis is far from the only policy we need to reduce overregulation in our state. As my John Locke Foundation colleague, Jon Sanders, has written, the North Carolina General Assembly should also consider the interests of small businesses when drafting rules, demand fair compensation when regulations reduce or eliminate profitable use of private property, speed up the “review and sunset process” for outdated regulations, and repeal ambiguous laws that cede too much decision-making power to unelected agency heads.

Although political debate and media coverage may suggest otherwise, regulatory reform is not a hobbyhorse for vested interests. It is very much in the general interest of the people of North Carolina. We need a lot more.

John Hood is a board member of the John Locke Foundation. His latest books, Mountain Folk and Forest Folk, combine epic fantasy and ancient American history (