The US ranks 46th in how easy it is to start a company

By James Pethokoukis of AEI.

"The White House this week gave some welcome focus to the unhelpful rise of job licenses."

In “The land of free markets, tied down by red tape,” the FT’s Gillian Tett notes that issue but also highlights the difficulty in starting a business here:

Every nation needs a unifying idea. Americans love to see themselves as champions of free markets and entrepreneurial zeal — and have long been more welcoming to entrepreneurs than has most of the western world. But the 2008 financial crisis tarnished America’s self-image (with, for example, the eyesore of state support for mortgages). The entrepreneurial halo is starting to slip, too, since increasing quantities of red tape are making life harder for start-ups, relative both to the past and to the rest of the world. …  The process of securing these licences is often so costly and cumbersome that one recent study estimated costs for consumers at $200bn a year. More importantly, licences deter many would-be workers — and entrepreneurs.

A separate World Bank report is even more sobering. Last year it ranked countries according to their levels of support for the corporate world. This placed America in seventh place in terms of overall ease of doing business. But the US was ranked 46th — yes, 46th — in terms of how easy it is to start a company. This is worse than Estonia, Malaysia, Georgia and even France.

One important reason for this dismal position is that in America entrepreneurs need, on average, to navigate six different legal and regulatory hurdles to start a company. In New Zealand and Canada, which top the league, there is just one procedure. The complexity faced by Americans means that it takes them on average about six days to create a start-up; in many other countries the process is much faster and cheaper.

Of course, this World Bank league does not tell the whole tale. The American national average conceals significant geographical variations because it is municipalities that set many of the business rules. Thus research by Thumbtack, a West Coast website that connects consumers with local businesses, and the pro-entrepreneurship Kauffman Foundation shows that it is much easier to start a company in Texas than, say, California. Moreover, red tape is only one factor that determines start-up activity; what also matters is whether there is access to capital and a culture of respect for entrepreneurs.

I address the issue of startups and US economic dynamism in my new “Room to Grow” monograph, “Startups and Entrepreneurship.”"