As Tad has noted, Thumbtack.com in cooperation with the excellent Kauffman Foundation of Kansas City has produced this attractive, clickable map of the 50 states displaying the results of a survey of small-business friendliness. It’s worth checking out your state’s standing, as well as that of states with which it competes for new business. To a large extent the findings come in just about where one would expect:
California plus the Northeast (aside from New Hampshire) are the most unfriendly overall. Add in the trio of Midwest industrial states (Illinois, Michigan, Ohio) plus Washington and Hawaii and you get the full list of seriously unfriendly states, with “D+” or worse grades.
The list of best states also includes few surprises: Texas, Oklahoma, Idaho, Utah, Virginia and several other Southern states.
Virginia (grade of A) far outdistances Maryland (C-), notwithstanding the views of Washington Post business writers who often chide the Old Dominion for not emulating the economic policies of its neighbor to the north.
Other states, even in the Northeast, tend to do OK in one or two areas—New Jersey and Vermont avoid piling costs onto new hiring, Connecticut and Illinois are not entirely hopeless on zoning, and so forth. The exception is California: it’s awful on everything.
There are also some data available on the city level.
Tad and Econlog’s David Henderson pick up on the following remarkable sentence from the study:
Small businesses care almost twice as much about licensing regulations as they do about tax rates when rating the business-friendliness of their state or local government.
Everyone knows high taxes depress business activity; it is libertarians who go on to offer a critique of licensure laws, and never has it seemed so relevant.
Today, the Institute for Justice released a 200-page, comprehensive study on occupational licensing in the United States. The report details the plague of occupational licensing that has swept the country over the past 60+ years. According to the study, “In the 1950s, only one in 20 U.S. workers needed the government’s permission to pursue their chosen occupation. Today, that figure stands at almost one in three.”
Fifty years ago, in Capitalism and Freedom, Milton Friedman warned against the dangers of professional licensing. At that time, Friedman quoted a previous study on licensure by Walter Gellhorn:
By 1952 more than 80 separate occupations exclusive of ‘owner-businesses,’ like restaurants and taxicab companies, had been licensed by state law; and in addition to the state laws there are municipal ordinances in abundance, not to mention the federal statutes that require the licensing of such diverse occupations as radio operators and stockyard commission agents. As long ago as 1938 a single state,North Carolina, had extended its law to 60 occupations. One may not be surprised to learn that pharmacists, accountants, and dentists have been reached by state law as have sanitarians and psychologists, assayers and architects, veterinarians and librarians. But with what joy of discovery does one learn about the licensing of threshing machine operators and dealers in scrap tobacco? What of egg graders and guide dog trainers, pest controllers and yacht salesmen, tree surgeons and well diggers, tile layers and potato growers? And what of the hypertrichologists who are licensed in Connecticut, where they remove excessive and unsightly hair with the solemnity appropriate to their high sounding title?
The Institute for Justice’s study found that licensing has only become more wide-spread and more absurd. But an increase in licensure is expected when interest groups are allowed to capture government and violate our economic liberties. Public choice theory predicts a growth in licensing if the anti-competitive interests of trades are not checked by constitutional rights. As Friedman observed,
In the absence of any general arrangements to offset the pressure of special interests, producer groups will invariably have a much stronger influence on legislative action and the power that be than will the diverse, widely spread consumer interest. Indeed from this point of view, the puzzle is not why we have so many silly licensure laws, but why we don’t have far more.
There are significant real-world effects to these laws. In a world of nine percent unemployment, barriers to work should be the last thing we want, particularly if those barriers do not make us safer or better off. The study found that the average license forces would-be workers to pay an average of $209 in fees, take one exam, and complete nine months of training. In the four places in which they are licensed (three states and DC), interior designers have the highest barriers to entry, apparently to save us from shag carpeting and misuses of the Pottery Barn. In the face of such requirements, particularly the months of training, it’s easy to see how someone can be discouraged from even looking for a job.
In addition, out-of-control licensing has other, more human costs, such as the monks of Saint Joseph Abbey, who were prohibited from building caskets in their monastery unless they obtained a funeral director license. The Institute for Justice won that case. Here’s hoping the new study gives IJ’s attorneys the data they may need to defeat other unconstitutional licensing regimes.
Farm families, along with the cause of liberty, won an important battle last week when the Obama administration scrappedplans to prohibit kids from doing a wide range of jobs in agriculture, even on farms belonging to their own family members. The rules would have barred youngsters under 16 from working with animals, storage bins, power-driven equipment, and various other things found on farms; perhaps most significant, they took an exceedingly narrow view of the so-called parental exemption provided by the law, so that (in the rules as proposed last year) kids would have been forbidden to work on an uncle or grandparent’s farm, or any farm less than “wholly” owned by their own parents. The Department of Labor was inundated by upwards of 10,000 comments, overwhelmingly negative, from farmers and ranchers; playing out in press outlets like the Custer County, Neb. Chief, the controversy was mostly ignored by the Eastern press, though NPR did do a report in December.
Commentator Ira Stoll has connected the dots about the Obama administration’s tendency to press ahead on extreme regulatory measures, then back off after a public outcry builds:
Examples include the mandatory automobile back-up camera rule, the ban of all cellphone use, even hands-free, while driving, the ban on 100 watt incandescent light bulbs, the NLRB’s action preventing Boeing from opening a factory in South Carolina, a right-to-work state, and the IRS’s cumbersome Form 1099 requirement as part of Obamacare.
Last fall I noted the same pattern, including retreats on EPA standards on dust, smog, and cross-state air pollution, and a misbegotten rule on lead abatement that could have made it prohibitively expensive to rehabilitate older homes. As I said at the time:
This, then, seems to be the new Obama administration compromise position …: they’ll hold off for now on saddling the economy with at least some potentially ruinous regulations – but they’ll make sure you know they’re not happy about having to take that stand.
More on the Obama administration and regulation here.
Last fall in this space I described the Foreign Corrupt Practices Act as “a feel-good piece of overcriminalization” that Congress should never have passed. Over the weekend a front-page New York Times investigation alleged that Wal-Mart’s Mexican subsidiary had paid millions in bribes to local officials for permission to build stores around the country. Worse, when executives in America learned of the payments, they chose to sweep the matter under the rug rather than pursue an investigation, and that choice may have implicated high-level company execs in FCPA violations. [WSJ summary; Wal-Mart written statement and video]
I’m writing up a longer piece on the controversy. In the mean time, a few points:
The original payments to Mexican officials are said to have exceeded $24 million; meanwhile, $12 billion in stock market value, or 500 times that sum, was vaporized in one day on Monday. Wal-Mart’s high legal exposure arises through the interaction of various FCPA provisions with each other and with other federal and state laws, including possible liability under state corporate law and Sarbanes-Oxley. Collateral costs, such as executive distraction and probes into its operations in other countries, could debilitate the largest U.S. retailer for some time.
A good place to begin on the legal issues is Mike Koehler’s FCPA Professor with coverage here and here.
According to Peter Henning at NYT DealBook, it may be too late for the feds to file criminal charges against individual defendants over the original payments because of FCPA’s five-year statute of limitations. On the other hand, DoJ will have various theories to go after the company itself: it can claim that later financial results are misstated, or that there was a conspiracy at least one step of which was taken within the last five years, or that records were destroyed which could serve as an obstruction of justice charge under Sarbanes-Oxley. If the original wrongdoers wind up walking free while managers who arrived on the scene later take a full legal hit, well, that wouldn’t be the first time.
Some proponents of the FCPA are claiming vindication: how can the Cato types be right in calling this law vague and punitive when it failed to deter a cover-up at a company as big and image-sensitive as Wal-Mart? UCLA corporate law specialist Stephen Bainbridge has a nice riposte: “In other words, the FCPA imposes huge burdens and liability risks on honest companies, but fails to deter dishonest ones, so we’re going to leave it on the books as is. I’m left scratching my head in wonderment at the folly of it all.”
Daniel Fisher at Forbes scores an interview with the eminent Yale management professor Paul MacAvoy whose analysis of the case follows:
…all large U.S. corporations operating abroad must play a dangerous game in order to obtain the permits and permissions they need. MacAvoy, who has served on the boards of Chase Manhattan, American Cyanamid and Alumax, said Wal-Mart’s mistake was steering all the payments to a pair of lawyers who allegedly were friends of the company’s Mexico counsel. That concentrated the risk and the likelihood of a big, crater-the-company scandal instead of a series of small ones.
From my experience, he said, most companies have “local representatives involved in negotiations and they pay the local reps a fee for the representation without asking how that fee gets redistributed.”
“The consultant does the dirty work,” he said. “This case went wrong by the concentration of the funds and the coverup of the process.”
Now where have we seen this before? S. 2337 would require that federal regulations use plain writing that is clear, concise, well-organized, and appropriate for the subject matter and intended audience.
Maybe passing another law will do it. Maybe the search for locution that provides a level of clarity sufficient for public consumption comes from alternate changes in public policy than to amend the expression of their societal impact. (ahem)
It also seems that poor people are the main victims of these expensive and intrusive laws. According to a new World Bank study, half of all adults do not have a bank account, with 18 percent of those people (click on the chart below for more info) citing documentation requirements—generally imposed as part of anti–money laundering rules—as a reason for being unable to participate in the financial system.
But this understates the impact on the poor. Of those without bank accounts, 25 percent said cost was a factor, as seen in the chart below. One of the reasons that costs are high is that banks incur regulatory expenses for every customer, in large part because of anti–money laundering requirements, and then pass those costs on to consumers.
The data show that 50 percent of adults worldwide have an account at a formal financial institution… Although half of adults around the world remain unbanked, at least 35 percent of them report barriers to account use that might be addressed by public policy.
…The Global Findex survey, by asking more than 70,000 adults without a formal account why they do not have one, provides insights into where policy makers might begin to make inroads in improving financial inclusion.
…Documentation requirements for opening an account may exclude workers in the rural or informal sector, who are less likely to have wage slips or formal proof of domicile. …Analysis shows a significant relationship between subjective and objective measures of documentation requirements as a barrier to account use, even after accounting for GDP per capita (figure 1.14). Indeed, the Financial Action Task Force, recognizing that overly cautious Anti–Money Laundering and Terrorist Financing (AML/CFT) safeguards can have the unintended consequence of excluding legitimate businesses and consumers from the financial system, has emphasized the need to ensure that such safeguards also support financial inclusion.
One would hope leftists, who claim to care about the poor, would join with libertarians to roll back absurd anti–money laundering requirements. Heck, one would hope conservatives, who claim to be against pointless red tape, would join the fight as well.
Last but not least, I should point out that statists frequently demagogue against so-called tax havens for supposedly being hotbeds of dirty money, but take a look at this map put together by the Institute of Governance and you’ll find only one low-tax jurisdiction among the 28 nations listed.