With the ongoing debate about income inequality and increasing the minimum wage, it’s important to revisit the basics. In order to demand a wage increase, you must first have a job. In order to have a job, someone must create that job. In order to create that job, someone must start a business.
But now, when our economy desperately needs more — and better — jobs, a major study shows that starting a business in the U.S. is more difficult than ever.
The study by the World Bank and the International Finance Corp. ranked 189 nations on how easy it is to start a new business. They considered the number of procedures required, the time necessary to complete the paperwork and the expense involved.
The U.S. ranked 20th, down from 11th last year. Our showing was well behind countries such as Rwanda, Belarus and Azerbaijan. The good news? We narrowly beat out Uzbekistan.
New Zealand is the best place in the world for entrepreneurs, according to the report. Starting a business there requires “one procedure, half a day (and) less than 1 percent of income per capita and no paid-in minimum capital,” the study noted. New Zealand was followed by Canada, Singapore, Australia and Hong Kong in the top five.
By contrast, the U.S. requires, on average, six procedures, takes five days and requires 1.5 percent of the company’s income per capita.
The study also listed the countries that made it easier to start a business in 2012/13. The U.S. was not on that list.
Despite our slide in this global ranking, the U.S. was well ahead of Surinam, where it takes almost 7 months to start a business.
Why is this important? Because most jobs are created by small businesses, and research shows that economic growth is driven by the entry of new businesses rather than by the growth of existing firms.
Chances are we wouldn’t be debating income inequality or the minimum wage if we had a robust, expanding economy that was creating tens of millions of new jobs.
However, an annual avalanche of federal and state regulations is making it increasingly difficult to run a business. Bernie Marcus, co-founder of Home Depot, says he never would have been able to start the company in today’s regulatory environment.
“I can tell you that today the impediments that the government imposes are impossible to deal with. Home Depot would never have succeeded if we’d tried to start it today,” Marcus said.
How does Washington rank? It depends on whom you ask.
Chief Executive magazine ranked Washington 36th out of the 50 states in 2013, up one from the previous year. While we get good marks for quality of life and workforce, we take a hit when it comes to taxes and regulations.
Forbes magazine ranks Washington 9th overall, but places us 27th in business costs and 32nd in regulatory environment.
The bottom line is this: While news coverage tends to focus on “big business,” most jobs are created by small business. And launching a new company is risky in the best of times.
In many ways, it’s like skydiving: You prepare the best you can, but in the end, it is a leap of faith requiring enormous courage and personal risk. Many entrepreneurs mortgage their homes and empty their savings in order to start a business. In this economy, they lie awake at night, worrying how to make payroll for the employees who depend on them.
Elected officials in Washington D.C. and Olympia — most of whom have never run a business — should keep that in mind when they consider imposing new regulations and taxes that make it harder for employers to sustain and create jobs.
