The essence of entrepreneurship is taking initiative to do some activity that is valuable to others, taking risks to earn a profit. Entrepreneurship can happen in larger organizations when employees are free to be creative and take risks, but the typical entrepreneur is the small business owner who sees a problem and finds a way to solve it, a solution for which people are willing to pay. Entrepreneurs can be self-employed with no employees and little overhead.
With unemployment remaining high for such an extended length of time, self-employment would seem to be an attractive alternative for many people. Everyone has skills which they can use to solve problems for other people, and everyone has problems in their lives for which they would be willing to pay for a cost-effective solution. Why do so few people who are unemployed choose the self-employment route to earning a living? There are various reasons, and it is worthwhile to see how they impact employment in this country.
The fundamental reason that people decide against self-employment is risk. Making decisions in the midst of uncertainty can lead to loss, even to disaster and bankruptcy. It is a fact of life that a fair number of entrepreneurs fail at what they attempt. On the positive side, many successful entrepreneurs were failures who tried again. Their success is the far side of their failures. It is also a fact, however, that you get more of whatever is subsidized. Government heavily subsidizes unemployment and, thus, we get more of it than there would be without it. Most people decide against the risks accompanying entrepreneurship and for the comforting thought of risk-free money. As the payments for unemployment increase, the incentive toward self-employment, or even finding an alternative job, decreases.
Once an entrepreneur decides to add employees, another whole dimension of costs, regulations, and restrictions arises. It is a perverse type of punishment for people who are daring enough to try to expand their operations. Rather than just paying people for work that they do, the business person now has to navigate a complex paperwork maze and hire additional people just to make sure he complies with arbitrary rules.
There are things that politicians and government agencies can do to reduce unemployment and increase productive work. Those things, however, are very different than those typically promoted by them and the main stream economic establishment. They entail steps to reduce the difference in relative risk between remaining on unemployment and choosing self-employment or alternative employment, including making it less expensive and restrictive to hire. That could be done by decreasing the benefits of unemployment and/or decreasing the risks of employment and self-employment. The first, reducing unemployment benefits, is unlikely, given the political climate, but the second is very easy to accomplish. Since many of the risks and difficulties of self-employment arise from government-enacted restrictions and regulations, repealing those restrictions will automatically and substantially remove impediments to self-employment or expanding employment. Reducing the costs of hiring more employees and complying with bureaucratic nonsense will put more money in the pockets of the entrepreneur and reduce the risk of loss.
A recent documentary highlighted a woman who saw a need for transporting people to medical appointments. She got a van and appropriate vehicle licenses. She could not operate, however, until she got a business operating license. For two years she tried to make things work, but her efforts ran into continual bureaucratic stonewalling. She eventually gave up her dream, and her potential customers were deprived of an inexpensive option to fill their very real need. She is not alone. The modern barriers to starting a business can be intimidating. If people do work which satisfies customers, why should they be required to satisfy a bureaucrat and pay the state for the right to work? Licensing simply adds politics and restrictions on people's ability to earn a living. There are plenty of private certifications for customers who need assurance of greater training. Why should a bureaucrat decide the proper size, shape and color of a tomato or any other product? Business owners can decide what is proper by what customers are willing to buy.
There are thousands of laws at the national, state and local levels which restrict markets and make it more difficult to start and operate a business, both large and small. Government doesn't have to do anything other than stop what it is doing to increase risks, costs, and difficulties for starting businesses and expanding employment.
Dan McLaughlin is a columnist for The Post-Journal. Contact him at danmcl999@roadrunner.com.