The War On Small Business

Trying to open a new business can be a massive and costly headache.

Cory Doctorow passes along this story from The New York Times about the travails of a San Francisco woman to open an ice cream shop in the city:

The Ice Cream Bar opened Jan. 21 in the Cole Valley neighborhood — an homage to the classic parlors of the 1930s, complete with vintage soda fountain and lunch counter seating. It has become an immediate sensation, packed with both families and the foodie crowd, savoring upscale house-made ice creams and exotic sodas (flavorings include pink peppercorn and tobacco). The shop also employs 14 full- and part-time workers.

But getting it opened wasn’t easy.

“Many times it almost didn’t happen,” said Juliet Pries, the owner, with a cheerful laugh.

Ms. Pries said it took two years to open the restaurant, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.

“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”

Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water.

The ice cream shop’s travails are at odds with the frequent promises made by the mayor and many supervisors that small businesses and job creation are top priorities.

The matter has also alarmed some business leaders, who point out that few small ventures could survive such long delays.

“Someone of lesser fortitude would have left three months into it,” Ted Loewenberg, president of the Haight Ashbury Improvement Association, said of Ms. Pries. “Through these hard times we’ve heard all the rhetoric about streamlining the process, about one-stop shopping. It hasn’t happened.”

San Francisco is put one example, of course, of something that people looking to open news businesses nationwide run into on a daily basis. While the regulations are understandably more numerous in major cities, there is hardly a community in the country where someone seeking to open anything from an ice cream shop to a barber shop wouldn’t run into a whole host of rules, regulations, and requirements that end up making the process of getting into business for yourself, which used to be part of the American way of life, more and more difficult. There are city and county business permits, zoning ordinances, parking surveys, and use permits that must be obtained even before you can open your doors. Each of these costs money, not just in the fees that must be paid to local government authorities, but also the professional fees that you’ll have to pay to lawyers and other professionals in order to guide you through the process. If you’re “lucky” to be in one of those states that requires you to get a license to do something as simple as operating a flower shop, that’s another hoop you’ll have to jump through. Before it’s all over, the $33,000 that Ms. Pries paid to the City of San Francisco may end up being the least of your worries. And again, that’s all before you’ll end up even being able to open your doors for business and serve your first customers.

Contrast this with the way that local governments typically treat big business. Yes, they have to comply with the same rules as the small business owner but they’ve already got a huge pot of cash to cover that so the cost is negligible. Moreover, it’s quite often the case that local governments end up giving huge tax breaks and other subsidies to large companies in order to get them to locate a store, factory, or other facility in their area. The justification for these subsidies is typically the jobs that the employer brings to the area but, as with government-funded sports stadiums, the long-term benefit to the community of these subsidies (which can include major expenses like covering all or part of the cost of road construction for the near-exclusive use of the business) is doubtful at best. If these large companies are such a benefit to the communities that they move into, then shouldn’t they have to play be the same rules as everyone else?

Of course, the answer isn’t to hold everyone to a series of non-sensiscal bureacuratic rules that make opening a business more difficult and expensive than it needs to be, tha answer should be to make it easier for people to open new business and strengthen the local economy. It shouldn’t have taken Ms. Pries two years to open an ice cream shop, and you shouldn’t have to pass an exam to become a florist like Louisiana does. The Institute for Justice has spent years fighting these kinds of arbitrary and capricious licensing and permitting laws that serve little purpose other than protecting existing businesses and stifling competition. However, there’s far too little attention paid to this issue at the state and local level, even at a time when the economy is weak and The failure rates for a small business are already high, even in a good economy. It makes absolutely no sense to put a stranglehold on them in this manner, especially at the same time that localities are providing subsidies to large corporations.

H/T: Instapundit

FILED UNDER: Bureaucracy, Economics and Business, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Dave Schuler says:

    Much of the ceremonial adulation of small businesses is misplaced. Most small business stay that way. However, the history of the last several decades is that most new jobs have been created by new businesses while large, established businesses have shed jobs at an alarming rate. When you couple that with the observed slowing in new business formation not just recently but for many years, it goes some way to explaining the slowness in recovering the jobs lost during the recession.

    There is some degree to which regulations and licensing requirements are clubs wielded on behalf of established businesses to prevent upstart competition. The challenge is identifying what degree that is and limiting it.

  2. Brummagem Joe says:

    Is there something new about this phenomenon? Was it completely different five years ago? This was a food business and yes they tend to attract more regs than if someone is opening dress shop and I’m sure in SF they attract more attention than in Scranton. Having said that it”s pretty easy to open up most small non food related businesses. Even food businesses in most places aren’t that difficult according to info I have from a couple of friends one of whom owns several restaurants and the other a lady owns a specialised provisions store. What you’re doing here Doug here is extrapolating some anecdotal horror story into the general experience.

  3. James says:

    San Francisco is put one example, of course, […]

    I’d really advise you get more than one data point if you’re going to write a piece about the “war on small business”.

  4. This is a good example of bad and excess regulation. I’d love to see such things fought straight-on.

    But just to warn you … I have seen in comments on this very ice cream shop, the jump to “this is why the EPA is bad.”

    Uh, no. You need to map out a specific and bad regulation, and then ask for that bad regulation to be rolled back. This is not an excuse for improper generalization.

  5. Also, we should recognize they dynamic. This isn’t about city staff being right or left. It’s decades of CYA piled upon itself. Combined, no doubt, with some departmental empire-building.

    This kind of local malfunction isn’t going to be cured by national politics.

    I mean, unless someone can find Federal laws or regulations forcing these delays.

  6. Hey Norm says:

    “…There are city and county business permits, zoning ordinances, parking surveys, and use permits that must be obtained even before you can open your doors…”

    Sure. And every one of those regulations has a purpose. There are two sides to every story. Regulations on businesses protect the rest of us from businesses. I don’t want that shop in my town if they are going to not have parking and create a traffic problem I have to deal with. I don’t want them in my residential district lowering my real estate values. And I don’t want them in my town if they aren’t maintaining health standards. Can regulations be done smarter? More effectively? More efficiently? Sure.
    But let’s be clear…that’s not what Libertarians and Republicans are after. They want to give away the farm to anyone and everyone…un-intended consequences be damned…because the invisible hand will guarantee that they will act in a socially and morally acceptable way…and besides, who cares if they don’t? It’s the free-market system.
    I deal with codes every single day…and many of them annoy me every single day. Then an earthquake hits Haiti and almost every building collapses because they have no codes. Libertarians and Republicans would prefer the outcome in Haiti…because the invisible concrete reinforcement was installed by the invisible hand.

  7. James H says:

    I think one of the problems is that individually, a lot of the various permits, license and so forth have merit. But when you put them all together …

  8. @Hey Norm:

    Can regulations be done smarter? More effectively? More efficiently? Sure.

    Buried lede?

  9. Vast Variety says:

    Grinnell, Iowa – Pop 8000 to 10,000 (depending on the time of year) – While I suspect that opening a business that serves food would have more regulations, I recently got involved in a small start up retail shop. There is no permit at all in Grinnell. The only thing we needed was a state sales tax permit which involved filling out a simple 1 page form. Even the filling for the LLC was simply a $50.00 fee and simple form. Now our taxes on the other hand… filling out that 1065 is proving a challenge.

  10. Scott O. says:

    One thing I have to question here. $11k to turn on the water? I find it hard to believe that that’s the standard charge. Did she have to pay the previous tenant’s unpaid bills?

  11. MBunge says:

    “serve little purpose other than protecting existing businesses and stifling competition.”

    Rent seeking is a real economic activity with real negative consequences, but only folks who are largely insulated from “creative destruction” are indifferent to the natural human desire for a little safety and security against the ever present threat of being ground up and spit out by the economy. Or is Doug advocating loosening up the requirements needed in order to practice law?

    Mike

  12. sam says:

    Which only confirms to me that much of the political rhetoric in this country — finding the source of “tyranny” in the federal government — is misplaced. State and local governments exert far, far more control over our everyday lives than the feds. Indeed, I’d guess that for the majority of Americans, their interaction with the federal government is exhausted by filing their income tax once a year, and maybe catching a plane…. State and local governments, on the other hand, marry us and bury us — and touch on nearly everything we do in the interim.

  13. James says:

    @MBunge:

    Or is Doug advocating loosening up the requirements needed in order to practice law?

    Great point that I hadn’t though of before. How can a free-market libertarian work for a labor cartel?

  14. Herb says:

    @James: No surprise at the “War on Small Business” language. Look at who’s getting the hat tip…..

  15. Jib says:

    Starting a food service company is harder than any other small biz. I have known several people who started restaurants. It is not that bad, permits being the least of the issues, equipment and inventory is the big money sink. The worst permit is a liquor lic. and that is just a time sink.

    I have no way of knowing what the deal is with the ice creme shop but most of the ‘horror’ stories I have heard are self inflicted. Some people, actually, lots of people, are not cut out to start a biz. I have known people who like to complain about the process more than they do getting the shop open. They do really stupid things, misfile applications, miss deadlines, and then argue about how the govt is out to get them.

    Think you have what it takes? Lets see how you feel about this. An electrician who works a lot on new biz always wires a plugin wrong. He knows that the inspector’s want to find at least on red tag in the first inspection and they will keep looking until they find something. He gives them an easy find and its an easy fix and your on to the next thing.

    One way some people react to this is ‘Great!, that was easy, whats next?’ However, if this pisses you off and you really want to change this because it is fundamentally not fair and NOT THE RIGHT WAY TO DO IT then you do not have what it takes to start a biz. Maybe you should think about becoming a political activist, start a political blog whining about how bad the govt is and not waste your money and time trying to open a restaurant. Real entrepreneurs have too many things to worry about to get into fights with local bureaucrats. Like will enough people walk in the door to keep the biz going.

  16. James says:

    @Herb: I saw the h/t. I’m just happy this thread isn’t getting steamrolled with 200+ downvotes on non-Glenn Reynolds approved opinions.

  17. Hey Norm says:

    @ James/Herb…
    I saw that h/t and immediately wondered what facts were left out to make the case.
    Jib is spot-on with his comments regarding self-inflicted damage.

  18. PD Shaw says:

    @Vast Variety: Hey, I’ve been to Grinnell, that’s a nice place and nice campus. I would imagine its a pretty liberal place.

    From my experience when dealing with smaller cities, you can usually find someone in the city administration that will help a business start-up, even filling in the paperwork. The only problems tend to be when the city isn’t dealing with its own regulations, but some state/federal regulations they aren’t familiar with.

  19. Tsar Nicholas says:

    On the bright side for the Queen City, however, at least the hordes of homeless riff raff there have plenty of opulent public toilets in which to barter sex for drugs.

    Putting that aside, the real issue with small businesses and left-wing policies is not so much the red tape that’s necessary to start a small business, it’s the red tape that’s necessary to operate a small business. This especially is true in economic cesspools such as California and most particularly in San Francisco. A “living wage” ordinance. A separate sales tax to fund local “healthcare,” i.e., amulatory and clinic services for dregs. A high local sales tax rate in the first instance. A local fuel tax and ensuing higher-than-average fuel costs. There are others. Over time these items cost a lot more than permitting.

    Granted, wealthy leftists in Pacific Heights feel good about these and other taxes and regulations, while preening at cocktail parties, but the unfortunate reality is that they murder small businesses and in so doing they perpetuate society’s ills.

  20. James says:

    @Tsar Nicholas:

    economic cesspools such as California

    Yes, yes, how could one ever found an innovative, dynamic, and successful company in an “economic cesspool” like California?

  21. David M says:

    @Tsar Nicholas: Cost and red tape aren’t exactly related. A high sales tax and minimum wage don’t really cause any more work for an owner than a lower ones. Also, as far as regulations go, barriers to entry are more problematic than ongoing costs. All established business will have to handle anything ongoing at the same time, so the impacts are relatively equal between companies, while barriers to entry can reduce competition in the marketplace.

  22. anjin-san says:

    If this is a war, it’s been going on for some time. Back in the 80’s I was hired as the bar manager of a new restaurant near, but not in San Francisco. At the time, Reagan was President and Deukmejian was Governor.

    We were ready to open, but there were issues with county permits. Being stuck in limbo was expensive, and the investors were rending their garments. A decision was made, and a large “campaign contribution” was made to our county supervisor. Voila, the waters parted, and the doors opened.

    This sort of thing has been going on in urban areas since the days of ancient Rome and before. There are always fees to be paid, palms to be greased. They playing field is never level.

    Dealing with the city government in SF can indeed be an unpleasant experience, I know plenty of people that have gone through it.

    Once upon a time, the big four ruled SF pretty much at their whim. They owned the government. They owned the police. They owned transportation. They owned damn near everything. If you wanted something, you went to them or their minions, cap in hand, on bended knee. Make an enemy of them and they would destroy you.

    I’ll take the modern system, with its flaws and need for reform. The GOP seems to want to take us back to the 19th century.

  23. Brummagem Joe says:

    @Tsar Nicholas:

    On the bright side for the Queen City, however, at least the hordes of homeless riff raff there have plenty of opulent public toilets in which to barter sex for drugs.

    This where you spend your nights?

  24. Brummagem Joe says:

    This entire load of codswallop need to be filed alongside the war on christmas and all the other imaginary wars that are conjured from the fevered imagination of conservatives and Libertarians.

  25. Hey Norm says:

    @ANJIN-SAN…
    Hence the motto…”Take the Country Back”.

  26. anjin-san says:

    On the bright side for the Queen City

    Getting a whiff of repressed latency here…

  27. anjin-san says:

    Hence the motto…”Take the Country Back”.

    Which they plagerized from Howard Dean… “I want my country back.”

  28. Ben Wolf says:

    Moreover, it’s quite often the case that local governments end up giving huge tax breaks and other subsidies to large companies in order to get them to locate a store, factory, or other facility in their area. The justification for these subsidies is typically the jobs that the employer brings to the area . . .

    The result whether intended or not is to push more employment toward large corporations and away from small businesses and self-employment. I don’t give a damn when someone thinks there are “good” reasons for the morass of permitting: they force more people into servitude to the same corporate entities squeezing them for every last nickel and strip away opportunity to achieve financial and political independence from our oligarchy. Anyone calling themselves liberal should be appalled at this sort of thing.

  29. Herb says:

    @James: I didn’t mind the down votes so much. It’s what I would expect from the type of person who thinks “heh, indeed” is the most intelligent response to…oh….just about everything.

    This “war on small business” stuff, though…It bugs me not just because its Reynoldseque, but it’s also incredibly lazy. Bad regulations exist. It’s a fact of life. Sometimes a liberal Democrat puts them on the books. Sometimes a conservative Republican does.

    If we’re to believe Reynolds and this half-assed attempt at analysis, we’d have to accept that a) all regulations are bad and b) we have the liberals to blame. BooooooRING.

  30. Jib says:

    @Herb: Yes. This from a guy who makes his living on others people taxes by teaching students how to rent seek as lawyers. I can not take anyone serious who is claims to be a libertarian who is also a lawyer and a state employee.

  31. Herb says:

    @Jib: While that does hint that Reynolds doesn’t really believe half the $hit he’s shoveling, I don’t think that disqualifies him from having an opinion. I make my living from the corporate world and have no qualms criticizing how that works.

    The problem is that Reynolds is a hack. He’s not looking for areas in which regulations have failed in the hopes of fixing or eliminating them. He’s looking at a case of failed regulations and saying, “See? Told you regulations suck.”

  32. Hey Norm says:

    @ anjin-san…
    Which I think actually Dean plagarized adopted from the Vermont GOP…”Take VT Back” was their slogan in the elections just after Governor Howard Dean signed the civil unions law. Of course the joke was “Back to the 19th Century”.
    Nothing new under the sun.

  33. Brummagem Joe says:

    If you want some evidence of Doug’s economic and moral confusions here he’s bemoaning the difficulties of starting an ice cream shop and extrapolating it to some imaginary attack on small business. Meanwhile over on another thread he’s criticising the Obama and Bush administrations for rescuing the US auto industry and the millions of jobs directly and indirectly dependant upon it …. probably including some in mid Western ice cream shops.