Covid-19 has destroyed jobs as well as lives. More than 100,000 restaurants and bars closed in 2020, for example, despite the almost $1 trillion federal Paycheck Protection Program. The shift to online retail and the rise of telecommuting due to the pandemic will disrupt even more commerce. The job loss is likely to remain significant for many years. A desperate need now exists for new businesses to open and replace those that have shut down.
Yet standard measures suggest that America’s entrepreneurial energy has been declining for decades. In 1984, a high-water mark for Ronald Reagan–era new business formation, 14.6 percent of all establishments were less than one year old. In 2018, by contrast, only 9.2 percent of all establishments were that new. The declining rate of firm creation did not bring catastrophic increases in unemployment pre-pandemic because the rate of job destruction had also declined.
We must rekindle America’s entrepreneurial imagination, and a post-Covid push for easier business permitting is a natural place to start. The thickets of local business regulations that entangle American localities shouldn’t be allowed to stymie our economic recovery. Cities—where so much American growth is already generated—should set up one-stop permitting shops to get new firms open as fast as possible. And while cities are doing that, the federal government should pay for a cost-benefit SWAT team to make it easier for them to reevaluate their rules and to junk the bad ones. Some regulations could just be dropped for a year, say, to make recovery easier and to learn whether those rules actually do any good.
That Covid-19 would be disastrous for small businesses was clear by the end of March 2020, as the pandemic accelerated in America. The Alignable network includes 4.5 million businesses and regularly polls a subset of its members. I was part of a team of economists that worked with Alignable to use those polls to understand the extent of the coronavirus carnage. We spent some time confirming that the businesses that responded were roughly representative of America’s overall small-business ecosystem.
By early April, 45 percent of the polled entrepreneurs said that they were closed because of Covid-19. Even more shockingly, 37 percent expected that they would still be shuttered in December 2020. The more intangible businesses, like finance and professional services, were more likely to be open; the more physical businesses, including restaurants, were not. Fifty-six percent of eating and drinking establishments in our sample were closed, as well as 70 percent of arts and entertainment venues.
The typical business in the sample had only enough cash on hand to cover two weeks of expenses, so we thought that the dire predictions of mass extinction were plausible. The federal government, however, stepped in with…
Read More: Free the Entrepreneurs | City Journal