Is New York City Killing Entrepreneurship?
By William Mellor [Economic Liberty]
Today, tens of thousands of New Yorkers seeking to follow a rich tradition of entrepreneurship face a bewildering array of laws and regulations that prevent or stifle enterprise. The entrepreneurs featured here, and countless others like them, deserve a chance for a better future made possible when economic liberty--the right to pursue an honest living without arbitrary government interference--becomes a reality for all New Yorkers.
New York City's spirit of enterprise is in many ways an inspiring picture until one looks a bit more closely. For in a city in which some 10 percent of the population is on public assistance, any or all of the self-employed entrepreneurs described in this report face daunting government harassment-and even arrest-at a moment's notice for the "crime" of pursuing productive livelihoods.
examines the government-created barriers of licensing and permitting laws and public monopolies, and their effect on entry-level entrepreneurship in New York City;
documents how, in occupation after occupation, obstacles to enterprise often far exceed any legitimate exercise of government's authority to protect public health and safety;
highlights the heroism and tragedy among those who seek nothing more than to earn an honest living in their chosen trade, but who find this aspiration frustrated by rules and requirements whose main purpose appears to be to limit entry and competition in particular occupations; and
makes recommendations designed to ease legal entry into such endeavors, while recognizing government's role in protecting public health and safety.
The city's regulatory system seems swamped by a wave of the self-employed who find that if they were to comply with the law, they would have to abandon their activities. Instead, they pursue them outside the law. These activities cannot be considered criminal but, except through luck or a significant capital stake, they cannot become legal.
Their impact is enormous. The city's mainstream "formal" economy lost some 400,000 jobs in the late 1980s and early 1990s. At the same time, the underground economy has grown and may now represent as much as 20 percent of the city's economy overall.
Restrictive laws-whatever their justification-force entrepreneurs underground. Once underground, these entrepreneurs have little hope of growing their business or obtaining necessary capital. Banks and other financial institutions simply cannot make loans to businesses-whether in-home catering or community transportation-which, although benign and profitable, are not legal. When they seek to operate within the above ground economy, they face time-consuming credentialing or paperwork requirements with practically no chance of ultimately realizing their goal.
It is beyond the means of this study to examine the full gamut of occupational license and permit laws in New York: They occupy no fewer than 73 pages in the Official Directory of the City of New York with listings of various types of licenses, permits or other forms of certification which one may need from either state or city authorities to own or operate a business or simply to be employed in one. One needs a license to repair video-cassette recorders, to work as an usher or to sell tickets at wrestling matches, to remove and dump snow and ice, to set up a parking lot or a junk shop.
This report looks specifically at a sample of occupational permitting and licensing requirements that affect the unskilled and/or entry-level, minimally-capitalized entrepreneur seeking the first rung on the ladder of upward economic mobility.
Restrictions that limit the self-employed from legally pursuing their occupations can be divided into three broad categories, listed here with examples which this report will explore:
(a cap on the number of permits in entry-level occupations for which there are few, if any, qualifications or credentials required by law) [see page 5]: Entry ceilings affect taxicabs, merchandise vendors, food vendors, and newsstand owners. Street vendors represent perhaps the greatest disparity between the numbers of those trying to conduct business and an arbitrary legal ceiling meant to limit entry. By law, no more than 4,000 food vendors and 1,700 merchandise vendors may operate on the streets of New York. Estimates of the number of non-licensed vendors currently operating-over and above those holding permits-range up to 18,000.
(onerous licenses that minimize competition and go well beyond public health and safety concerns) [see page 18]: These requirements affect hairdressers, child care center operators, and car services. Such regulations often have little relevance to public health and safety. For instance, in New York one needs 900 hours of training to become a licensed hairbraider, 116 hours to qualify as an emergency medical technician with advanced training in the use of heart defibrillation; and 47 hours to be a security guard trained in the use of deadly force.
(government reserves certain services for public employees and will not allow private companies to compete) [see page 22]: New York City has tried to quash private competition to its heavily subsidized public monopolies by jitney van driver/owners and residential trash pick-up providers. Even though jitney vans are highly sought after by paying passengers, more efficient, less costly (a dollar per ride) and more flexible than public buses (some of which require subsidies of more than $3 for each paying passenger), jitney entrepreneurs face shut down because they compete with public buses.
How, then, can New York come to grips with its wave of hopeful entrepreneurs and provide the legal regime necessary to spark positive forces so desperately needed in its low-income communities? How can it reconcile the need for some regulation with the deadening effect posed by its current mass of regulation? The goal should be the formulation of a consistent policy across ranges of occupations, a policy designed:
to encourage entry-level entrepreneurship (and employment generally);
to discourage the use of regulation to create competitive advantage for private businesses; and
to articulate expressly the legitimate public interests that merit governmental concern (e.g., congestion, health or safety) and then to tailor laws or regulations to meet that end.