Friday, November 05, 2010

Tough luck Chuck or why its hard to go into business

Our friends at the Institute for Justice put out this little video to illustrate the impediments that local governments put in the way of people wanting to go into business. It is worth a few minutes of your time.

The Peruvian economist Hernando de Soto investigated how government regulations in Peru kept people poor. He tracked the steps necessary to open a business and had teams of people going through the process. It literally took full time work, for over a year, to register just one business legally. The result was that most businesses operated illegally and were frozen out of capital markets as a result. This was true, not only of businesses, but of property rights as well.

One of the hallmarks of a third world country is how difficult these governments make it to open businesses legally. The regulatory maze is one geared to those who are well off and educated. It costs a lot of money to maneuver that labyrinth of regulations and it is not cheap. Regulations thus tend to weed out out the poor and least educated, who often make great entrepreneurs regardless of those factors.

The rise of the regulatory state has impacted the poorest, most vulnerable members of society the most. Any regulation can be handled if you are wealthy enough, which is one reason that Big Business has consistently promoted candidates that want to regulate markets. Regulations can be manipulated so that they are anti-competitive and transfer market share, and thus wealth, to the big players in the field.

When my grandmother was a girl anyone who wanted to start a business could build a handcart, buy some products and start hawking their goods. The big department stores, using their political clout, put a stop to that through regulations which the politicians claimed were necessary to protect the public.

Consider immigratin regulations: my great-great-grandfather Jules Pepin (1838-1898) migrated to Chicago with his brother-in-law Joseph Bernard. Uncle Joe was 16-years-old when he walked to the US to join the Union troops because of his desire to set the slaves free. He returned to Quebec and with Jules came back to the U.S. to settle permanently. My great-grandfather Axel Hansson (1865-1955)

Similarly when my great-great grandfather Jules Pepin (1838-1898) left Montreal to walk to the U.S. to join the cause of Abolitionism that was all he had to do: walk into the country. Another great-grandfather, Axel Hansson (1865-1955), simply boarded a ship in Sweden and came to America. The process was simple and many of the poorest people of the world, at least those with ambition, came to this country. Some like Jules and Joe just walked, others like Axel sailed. But they had no regulatory maze blocking their way. And these are the people who made America great.

Now such people are kept out. Sure there is a "legal" means of immigrating, provided you have lots of money and sufficient education to get through the process. The process prevents those who would most benefit from immigration from doing so. The fact is that when our ancestors "legally" immigrated they did so because there wasn't a regulatory wall preventing it. Now there is just such a wall and that is why those looking for work have to sneak in. The legal options were closed off to them. Regulations benefit the rich, the well-off and the educated.

This is one of the most important things I wish my friend on the Left would understand. The regulatory state is one that transfers rights and wealth from the poorest sectors of the economy to the wealthiest—not the other way around.