RALEIGH — We all want North Carolina to be an attractive place to live, work, create jobs, rear families, and build communities. When we move from ends to means, the level of disagreement moves from low to high.
Generally speaking, progressives think that the best way to accomplish these goals is to expand government — to tax more, regulate more, and spend more on government services. Conservatives generally think the best way to make North Carolina a more attractive place to live and work is to restrain government so that it delivers basic services more cost-effectively, allowing households to keep more of their own money and freedom to use as they wish.
The dispute is often framed solely in the context of interstate mobility. Certainly we want people, businesses, and jobs to flow in rather than out. But let’s be more specific. Our growth over time depends heavily on our rate of entrepreneurship, the rate at which people — natives or newcomers — create and expand new businesses in our state.
There are many different ways to assess the rate of business formation. The U.S. Bureau of Labor Statistics counts jobs and business establishments across the country. Over the past three years, new enterprises represented about 3.11 percent of establishments in North Carolina. That’s modestly higher than the national average but lower than that of regional rivals such as Florida.
A set of entrepreneurship indicators compiled by the Ewing Marion Kauffman Foundation helps fill in the picture a bit more. While a higher proportion of Floridians (.42 percent) than North Carolinians (.28 percent) started a business last year, for example, that doesn’t tell the whole story. A higher share of those Florida entrepreneurs started their businesses “by necessity,” in other words because they lost a previous job. Entrepreneurship by choice was higher in our state. North Carolina startups were also slightly more likely than Florida startups to survive into a second year.
However our state might fare in an elaborate apples-to-apples comparison, there’s little doubt that North Carolina would be better off if more people were willing and able to take a chance on new business ventures in our state. You often hear the claim that small businesses are more important than large businesses when it comes to creating new jobs, or bringing to market new products and services that satisfy consumer demands. This isn’t quite right. A disproportionate amount of new economic value, including employment, comes from new businesses, regardless of size, although of course most new businesses start out small.
So, how can policymakers foster a stronger culture of entrepreneurship in our state? Both ideological coalitions offer predictable sets of answers. Progressives insist that government ought to spend more on public services even if it means higher taxes and that the new regulations they favor would confer more benefits than costs on North Carolinians, including those inclined to start and grow new businesses. Conservatives disagree.
It’s a complex matter, naturally, but on balance the empirical evidence supports the conservative side of the disagreement. Most studies find that startups are more frequent, and more likely to succeed, in states where taxes and regulations are low, all other things being held equal. Higher government spending doesn’t boost entrepreneurship in most studies.
A different way to test the proposition is to ask entrepreneurs themselves. That was the approach taken by three economists who published a recent study in the Journal of Regulatory Economics. They zeroed in on entrepreneurs in Kansas City, which straddles two states (Missouri and Kansas) that exhibit differences in fiscal and regulatory policy. The vast majority of respondents said they would be less likely to start a new enterprise in a place that increased occupational licensing, corporate taxes, or the time required to register a business.
A few, 16 percent, indicated otherwise. Some business folks don’t see bigger government as a barrier. Some reside in North Carolina. You may have heard from them, and their opinions are valid. But they are also atypical. Policymakers, take note.
John Hood (@JohnHoodNC) is chairman of the John Locke Foundation and appears on “N.C. Spin,” broadcast statewide Fridays at 7:30 p.m. and Sundays at 12:30 p.m. on UNC-TV.