You gain from new businesses

Some people dream of going into business for themselves. Even if you aren’t one of them, you should be rooting for many of these dreamers to succeed. New businesses create lots of jobs. And new businesses are often the source of innovative products and services that make our lives better.

I’ll bet that sometime today, you’ll use a piece of technology invented and brought to market by a company that didn’t exist when your parents were your age. You may also order a consumer product, take a medicine, or use a service that no one could have conceived of a generation or two ago.

If so, take a moment to think about how you personally benefit when someone else starts and grows a new business. And think about how foolish it is for North Carolina or any other state to erect barriers against starting and growing new businesses.

One big barrier is regulation. The time and expense required to enter a new field or open a new business location can be truly astounding. While few would disagree with the government’s need to protect consumer health and safety, many regulations don’t produce enough real protection against real harms to offset their massive costs.

Consider occupational licensing. Believe it or not, North Carolina requires some kind of government permission to enter 154 different occupations in our state, far more than in Virginia (76) or South Carolina (49). We’re not just talking about practicing law or performing brain surgery. Here are some of the occupations North Carolina requires a license to enter: auctioneer, barber, car sales, cemetery sales, esthetician, fur dealer, interpreter, librarian, locksmith, manicurist, pastoral counselor, and seed dealer.

For the most part, these careers aren’t regulated over the objections of those currently engaged in the business. Actually, current business owners are often the strongest lobbyists for occupational licensing. They want to use the state to keep competitors out. Some are even in the business of training new licensees, so obviously they want the training requirements to be as extensive — and expensive — as possible.

It is theoretically possible to engage in fraud in just about any business. State licensure is not required to police the problem. Voluntary certification, for example, would often be a fine substitute that would not erect high barriers to entering the profession. If you open a new business, you would have the option of getting a certification from a third party that you are honest, capable, and ready to address any consumer grievances that may come up. Consumers would be free to patronize the businesses of their choice based on how much value they place on the certification.

The truth is that few businesses can make any significant money by defrauding or giving bad service to their customers. Most require repeat business to become profitable. You may get away with a bait and switch one time. But no matter how well you advertise your good or service, consumers will only come back if they find it worth your price.

The precautionary principle that motivates most such regulation, in other words, is not a sound one. It doesn’t really produce much in the way of consumer protection. Its real effect, and usually its real purpose, is to protect existing providers from competition. That results in higher prices, fewer new jobs, and less innovation.

These aren’t just theoretical insights. There is a large and growing body of empirical evidence showing that entrepreneurship matters. In states where people start new businesses at higher rates, overall employment and incomes tend to grow at higher rates, too. It makes sense. Even in healthy economies, businesses close all the time. They falter, they become outdated, or their owners decide to retire. Unless there is a steady stream of new businesses coming down the pipeline, the economy as a whole suffers.

Reforming North Carolina’s archaic system of licensing occupations is just one of many regulatory changes we could make to keep that pipeline open. Much of the benefit will flow directly to you.

John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.
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