What’s holding back start-ups?

by Ryan Streeter on June 3, 2014. Follow Ryan on Twitter.

John Dearie at e21 draws a connection between flagging productivity and flagging entrepreneurship:

Throughout modern economic history, entrepreneurs and the start-ups they launch have been the principal source of the innovation that drives productivity gains…Alarmingly, entrepreneurship in America is in trouble. In an important new paper released by the Brookings Institution on May 5th, economists Robert Litan and Ian Hathaway show that new business formation and businesses dynamism—the economically vital process by which firms continually launch, expand, contract, and fail—has been in persistent decline over the last few decades…

He cites the rise of regulations as a big part of the problem:

Last year more than 3,600 new regulations were finalized and an additional 2,600 were proposed. Nearly 90,000 new final regulations have been promulgated over the past 20 years—an average of more than 4,300 each year. [Wayne] Crews [of CEI] estimates the overall cost of regulatory compliance and its economic impact to be $1.9 trillion annually—equivalent to the tenth largest economy on Earth.

He goes on to say:

The stifling effect of over-regulation is particularly acute for fragile start-ups, which lack the resources and scale of large firms over which to absorb and amortize the cost of compliance. A 2010 study by the Small Business Administration found that regulatory compliance costs small businesses 36 percent more per employee than larger firms.