Philly, just say 'yes' to businesses

By Robert McNamara

There is a strikingly large group of people in the Philadelphia area who want to make their community better. These are people with ideas about new businesses or services. And they have questions: Where can they start a business? What do they need to get the city's permission? What will all of this cost? Unfortunately, city government usually doesn't have the answers. And when it does, that answer is, almost invariably, "No."

It's not surprising then, that Philadelphia has shockingly few new businesses. The nonprofit Kaufmann Foundation recently found that the city has the lowest rate of entrepreneurship of any major metropolitan area in the United States. A recent study of barriers to entrepreneurship shows that one of the primary explanations for this is city government.

The report, "Philadelphia: No Brotherly Love for Entrepreneurs," was published as part of a national investigation by my organization, the Institute for Justice, into the regulatory practices of eight different cities. As the author of the Philadelphia report, I not only delved into the city's code books but spent time in the community talking to entrepreneurs about their dreams and the challenges they face.

One lesson I quickly learned is that the city does not, in fact, have a low rate of entrepreneurship - it has a low rate of legal entrepreneurship. The city is full of people who have started new taxi businesses (which city officials do not allow), who operate businesses out of their home (which, in many areas, city officials do not allow), or who use creative signs to advertise to consumers (again, not allowed).

In other words, the city has lots of small businesses, but because these businesses operate illegally, the entrepreneurs who own them have difficulty expanding, while the city loses out on tax revenue these businesses would be paying if the city's oppressive regulations didn't drive entrepreneurs into the underground economy.

The reasons for staying in the shadows vary. In some cases, like in the taxi industry, it is flatly illegal to start a new business. In other trades, the city's permitting and zoning laws are too baffling and difficult for would-be small-business owners to navigate.

All too often, city rules and regulations boil down to the whim of the inspector or official an entrepreneur is dealing with. All too often, their whim is simply to say "no." Instead of giving new businesses the time and space they need to grow, the city immediately hits them with an array of taxes, fees, and demands that are simply implausible, like requiring a start-up business to waste precious and often limited financial capital renting commercial office space instead of operating out of an entrepreneur's home.

The city's rampant overregulation, tremendous burdens placed on would-be entrepreneurs, and, above all, the pervasive culture of "no" are putting a stranglehold on entrepreneurial activity. Wracked by a budget crisis, the city inexplicably continues to expend extraordinary resources making it more difficult to start businesses, which could be expanding the city's tax base.

All Philadelphia needs to do to unleash small-business growth - to let loose the creative energies of thousands of would-be entrepreneurs - is to start saying "yes." When the city removes red tape, entrepreneurship will thrive. Then Philadelphia can show not only brotherly love, but love for entrepreneurs, too.