Barriers to Entrepreneurs in the U.S. Economy By Rachael Murphey

Entrepreneurship is an indispensable force in the economy. Entrepreneurs build wealth for themselves, but everyone benefits along with them: workers get another job option, customers get a better product for less money, and the economy grows. What can the government do to promote as much entrepreneurship as possible? First and foremost, get out of the way! Starting a business from scratch is hard enough without the added burden of government interference. There are several ways in which the government erects artificial barriers that make things even harder for entrepreneurs.

Regulatory Burden

People who have never run a business are typically unaware of the millions of regulations that businesses must follow. These statutes are frequently outdated, counterproductive, and confusing. There are severe penalties even for the smallest violations, to boot. How is an entrepreneur supposed to both run a business and interpret the thousands upon thousands of pages of regulations that pertain to their operation? Worst of all, the burden falls most heavily on small businesses. Large businesses can simply make use of their multi-million dollar legal teams to navigate through the regulations as easily as possible, but small businesses can’t afford this luxury.

Payroll Costs

The tax structure also hampers the growth of new businesses. This is most apparent in the various types of payroll taxes, which essentially function as a punishment for hiring American workers. Social Security, Medicare, income taxes, and mandated benefits all increase payroll costs. Under the current tax code, businesses that are initially unable to spend a great deal on payroll have a very hard time growing beyond sole proprietorship. Once again, the effect hits small businesses the hardest. This is because larger corporations will simply outsource or automate in ways that are unfeasible for smaller competitors.

Government Gatekeepers

State laws that require licenses or “certificates of need” for certain types of enterprises have expanded in the past few decades, effectively locking out new entrants and creating a cartel made up of existing businesses. The fees associated with these licenses can be staggering. Furthermore, the licensing boards are sometimes comprised of owners of existing businesses in that marketplace. Obviously, these individuals have no incentive whatsoever to allow new competition to spring up. This crooked arrangement exists in many industries from taxi service to healthcare.

Consumers, workers, and entrepreneurs would all enjoy a boost in living standards if only the government would stop interfering with natural market processes. These interventions are sometimes based on good intentions, but policymakers must wake up to the fact that they are not helping anyone by hampering the free market with onerous regulations, bloated payroll costs, and licensing schemes. The goal of government policy should be to enable the functioning of markets to the fullest so that everyone can reap the benefits.