To Get Economy Moving, Let Little Guys Get in the Game

Posted on January 07, 2004 | Type: In the News
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There's a lot of fretting these days about the Arizona economy.

Most of the fretters take a top-down perspective. They survey Arizona's macro economy and conclude that private investors are providing too little money to some can't-miss industrial sector, inevitably high tech and, of late, usually biotech.

If true, there's an obvious killing to be made by raising or providing the funds for the overlooked opportunity.

But, revealingly, the fretters rarely propose contributing or raising private-sector money to back their analysis. Instead, they invariably want some sort of preferential governmental treatment, tax credits or government-sponsored venture capital.

Gov. Janet Napolitano's Council on Innovation and Technology, which recently released draft recommendations, is just the latest in a long line to trod down this familiar path in Arizona and virtually every other state.

A useful alternative view of Arizona's economy was provided by a study released last month by the Goldwater Institute. It was written by Tim Keller, an attorney with the libertarian Institute for Justice.

This was a decidedly bottom-up view of the Arizona economy, looking at it from the perspective of someone wanting to run a small business.

Arizona has a reputation for being business-friendly. And if you're big or politically connected enough to get the government's attention, that's generally true.

But for the little guy, it's a tougher slog.

Among the states, the Small Business Survival Committee ranks Arizona as having only the 18th most-favorable business environment for small entrepreneurs.

The Fraser Institute and the National Center for Policy Analysis looked at a broad range of economic freedom measures for U.S. states and Canadian provinces in a 2002 study. Arizona did pretty well overall, ranking seventh among the states in economic freedom relating to state and local policies. But it ranked only 30th in occupational licensing.

Keller's study documents scores of burdens that small, politically unconnected entrepreneurs face. Tucson provides a 17-step checklist for small businesses hoping to set up shop there. And that's just to get the necessary city government approvals.

Phoenix charges $630 for a meeting just to talk about modifying a building. And the city charges $120 an hour to review site designs and the structural engineering of signage.

In some cases, the barriers are fatal. The Institute for Justice somehow manages to find almost Hollywood-cast clients for its cases to advance economic liberty. And it found another in Essence Farmer, a 23-year-old African hair-braider.

Farmer wants to open up a shop to do African hair-braiding in Phoenix, continuing a profession she practiced in Maryland. But Arizona law, unlike Maryland's, requires her to spend 1,600 hours at cosmetology school at a cost of an estimated $10,000 despite the fact that African hair-braiding isn't part of the state-mandated curriculum.

The Institute for Justice filed a suit on her behalf. There's a generally recognized right in law to earn a living. The institute hopes to build on that to obtain some federal and state constitutional limits on government restrictions and barriers to engaging in honest commerce.

The accretion of government taxes, fees and regulations imposes a mounting tariff on starting, operating or expanding a business. And, as Keller points out, that disproportionately hurts those at the bottom of the economic ladder, without the means or political connections to manage an increasingly tedious and costly process.

Things are getting worse, not better. Even the supposedly conservative Republican Legislature in Arizona passed a scad of measures last year expanding the regulatory state.

The fretters with the top-down perspective want to spend other people's money on what they think are good investments. Reducing the barriers to bottom-up entrepreneurship, however, lets people invest their own money and initiative.

To grow an economy, the latter is a much better bet.

Reach Robb at or (602) 444-8472. His column appears Sundays, Wednesdays and Fridays.

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