Three ways to jump-start job growth

The economy is off to a rocky start in 2016. Investors and analysts are unhappy. But while many analysts focus on jittery stock markets and bad news from overseas, there is a disheartening trend right before our eyes that almost no one is paying attention to: The high-growth, young companies that have traditionally driven job growth and innovation in our country are a dying breed. For the past several decades, business start-ups have steadily declined in America.

Have people become less ambitious? Less innovative? That's unlikely. A more probable explanation is that a steady accrual of rules and regulations for years has effectively eliminated a generation of entrepreneurs as the costs of running a new enterprise outweigh the benefits. The good news is that there is an antidote: increasing economic freedom.

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But first, let's look at the scope of the problem.

New and young businesses have historically been the heart of the U.S. economy. They are responsible for nearly all the new jobs we produce each year. And yet a growing body of research shows that young businesses have been on the decline in the U.S. since the 1980s, which means we have far fewer jobs available today than if businesses were still starting at the 1980s rate.

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Even more alarming: The share of high-growth young companies has collapsed, a new National Bureau of Economic Research study reports. The authors show that, historically, most job growth among young businesses has come from a small percentage of them that are growing much faster than all the others. Since 1999, this fast-growing cohort has essentially vanished, and young businesses are now more likely to be characterized as no-growth or slow-growth.

In other words, the dynamism most of us associate with the U.S. economy's ability to create jobs and foster innovation through new enterprises is evaporating before our eyes.

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Imagine if a steady stream of research showed an alarming spike in life-threatening diseases caused by additives in our food that had been weakening our immune systems. We would be doing everything we could as a society to understand and remove these debilitating additives from our food.

Despite a growing body of evidence that declining entrepreneurial dynamism is weakening our economy, policy makers have done little to understand the "additives" in our economy that are creating the problem. For help, they might start with the Fraser Institute's annual Economic Freedom of North America report.

The latest report finds that states with more stringent labor laws, business start-up costs, licensing laws, and compliance costs — to name a few — perform worse than more economically free states. Per capita income in the most free states is 14 percent higher than in the most un-free states.

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Undaunted, however, regulators continue to pump harmful additives into our economy. Regulations implemented over the past seven years alone amount to a $100 billion tax on the economy. One estimate finds that 31 percent of regulations increase compliance costs without providing any real health or safety benefit.

The well-documented explosion in state licensing laws over the past generation has kept an untold number of entrepreneurs from entering the marketplace in the first place. It is no wonder that small business owners now rank regulations on par with taxes as the single biggest threat to their growth, more than the cost of health insurance or competition with big businesses.

Policy makers should pursue three courses of action to liberate would-be entrepreneurs from the tangled web of rules that hold them back. First, Congress should enact legislation requiring congressional approval of all federal regulations estimated to have an impact above a certain dollar amount, such as $100 million. Congress' bad habit of delegating rule-making authority to unelected officials in federal agencies is a big reason we have had an explosion in costly, complicated rules.

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Second, Congress should enact a cap on the number and dollar amount of regulatory requirements every year. There are several ways to do this such as eliminating old regulations for each new, proposed regulation or capping the overall cost of regulations each year. Canada recently passed legislation capping their annual regulatory activity. The United States should do the same.

Third, state-level policy makers should provide alternatives to professional licensing, such as allowing individuals to opt out of licensing requirements in favor of nationally recognized, self-certification registries that rely on the tools of accountability and trust at the heart of the sharing economy. Too many professions have begun behaving like cartels behind the guise of licensing requirements. It is past time to break them up.

We hear a lot in our public discourse about inequality, but we hear far too little about our declining entrepreneurial dynamism. What if the latter is driving the former? It is certainly clear that starting a new business is not the path to upward mobility that it once was for middle class families.

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The trend of declining business start-ups has worsened to the point that our children may never know the range of opportunity Americans, until recently, took for granted. It is time for our policy makers to follow the data and embrace economic freedom over the rules and regulations that are discouraging would-be entrepreneurs from getting in the game.

Commentary by Ryan Streeter, Director of the Center for Politics and Governance at the University of Texas at Austin. Follow him on Twitter @streeterryan.

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