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The city of Detroit supports one of the nation's most byzantine systems of permitting and licensing for its citzens' occupations and businesses. For instance, a Detroiter who wished to pursue a career as a landscape gardener would have to navigate a maze of regulations to obtain a license to do so. The city also maintains outright bans on some activities, including all home-based businesses and "jitney" car and van services (i.e., private individuals providing taxi service).
Detroit, in fact, regulates all manner of entrepreneurial activity, the effects of which are to stifle economic life and drive away businesses and people. A September 1996 editorial by The Detroit News cited 350 different permits issued by 11 different agencies in the city.
But Detroit is not alone in throwing up ridiculous barriers to entrepreneurship. Many cities, from New York to Los Angeles, heavily regulate commerce at the local level. In New York, for example, city officials recently decided they didn't like street vendors. The result has been an ongoing regulatory assault against these vendors, who run legitimate businesses trying to provide food and other products to willing customers. In Baltimore, it is illegal to set up a newsstand. And a few years ago, officials in Washington, D.C. drove most vendors selling souvenirs to tourists off the Mall.
With this kind of attitude predominating in our urban centers, is it any wonder that "urban blight" has become a cliché? The causes of urban decay are complex, but connect the dots: Government regulations are a major reason that businesses everywhere—and entry-level workers and entrepreneurs in inner cities especially—find fewer opportunities to translate their energy and initiative into productive commerce and trade.
Often under the guise of protecting consumers, city regulations unnecessarily stifle the entrepreneurial spirit that drives the economic growth and development essential to a city's prosperity. If cities like Detroit really want to improve their citizens' quality of life dramatically, they should instead conduct an across-the-board privatization of municipal regulations. Cities need to take inventory of their stock of regulations and eliminate those not aimed at facilitating commerce. At the very least, cities should contract out their licensing and permitting departments to private, for-profit institutions.
Regulations are essentially hidden job killers. The problem is detecting how many jobs are being killed: There's no reliable way to know how many jobs were "never created" because the regulatory environment was too hostile. Entrepreneurs often find it too difficult to get through a costly maze of regulations and either throw up their hands in frustration and leave, or else operate illegally. As one Detroit businessman noted, "We operate on the basis that we just do what we want and the permits will catch up with us sometime."
Last year, ABC News journalist John Stossel contrasted what works and what does not with regard to city regulation of commerce. As a test, Stossel attempted to open small businesses in Hong Kong and New York City. He went to the appropriate Hong Kong city office first, to apply for a license to open a small retail outlet. He filled out one form and the next day he was operating his business in a mall. By contrast, the process in New York City took weeks and required licenses, state and federal tax numbers, and building and zoning approval.
There is no reason why U.S. cities cannot once again become small-business friendly. And there are successful examples available of how to go about it. Former Mayor Stephen Goldsmith helped Indianapolis eliminate licenses and fees for 110 local businesses and movie and live entertainment theatre licenses at 30 locations. The result: Not only did the city not lapse into chaos from a lack of regulation, it continues to thrive. A September 1998 Mackinac Center for Public Policy analysis reported that these changes, combined with competition from contractors, helped save the city 40 percent on the cost of issuing permits.
If a city insists on maintaining tight regulatory control on occupations and businesses, it could at least contract out regulatory duties to private firms. There are at least eight companies in Michigan that perform private building inspections, for example. Many of these also can conduct review and approval of construction and other development plans as well as zoning enforcement.
Because regulation constitutes an unseen tax that adds to the cost of doing business, it can easily cease to perform its proper function of facilitating commerce if it gets out of hand. Complex, duplicative, and expensive regulations send a signal to entrepreneurs that their talents are unwelcome; indeed, that they will be punished.
Cities could go a long way toward opening themselves to greater prosperity if they would encourage entrepreneurship and simply step out of the way. Edward Hudgins, Ph.D., is director of regulatory studies at the Cato Institute, a Washington D.C.-based think tank.
Regulation: An Ever-Widening Circle
Detroit's regulatory tentacles have now moved outside the city. Michigan state House Bill 5812, which amends Public Act 271, is more commonly known as the "Limousine Transportation Act." The bill would force certain suburban limousines who pick up or drop off clients in Detroit to adhere to rules and regulations that Detroit-based taxis and limousines must face.
Mayor Archer lobbied for this bill. He sent letters to state representatives asking for support, saying "Currently, most taxis and limousines operating within the city comply with the aforementioned ordinance, which among other things, requires operators to buy bond plates as part of their legislation. Still some carriers based outside the city continue to pick up passengers within the city absent proper registration. . ." "Furthermore, [T]he City of Detroit ordinance is more stringent than the state law by requiring an inspection by the city, as well as additional insurance coverage."
Not once in his letter did Mayor Archer mention the impact of such regulations on consumers. Had there been some evidence that Detroit consumers were being poorly served by less regulated suburban services, it would have no doubt been mentioned. Instead, the mayor makes the case that it is unfair to Detroit taxi companies to have to compete against suburban limousine companies because they operate under "a different set of rules."
Instead of using the state legislature to foist unhealthy mandates on suburban businesses, perhaps Detroit could simply reduce its own regulation.
