Barriers to Entrepreneurship: How Pennsylvanias Government Stifles Job Creation

EXECUTIVE SUMMARY

There is no doubt that Pennsylvania benefited from the booming national economy of the 1990s. But when compared to the rest of the United States, the Commonwealth’s economic progress lagged behind that of most other states during that time period. One major source of Pennsylvania’s slow recent economic growth has been its relative lack of success in stimulating the entrepreneurial activity that leads to small business formation and job creation.

With the slowdown in the national and state economies, it is critical for lawmakers and citizens to address Pennsylvania’s future economic health. These efforts must go beyond public relations exercises and address structural issues that are impeding Pennsylvania’s economic growth. Before literally throwing good money after bad, lawmakers must first dismantle the many government-created obstacles that undermine and deter entrepreneurship—and at the same time implement market-oriented policies that stimulate entrepreneurial activity in Pennsylvania.

The hurdles placed in the way of entrepreneurs by government regulation and taxation may not seem obvious to the casual observer, but mounting evidence shows that they harm the small firms and entrepreneurs that are essential to continued economic prosperity. With small firms accounting for three-fourths of total national employment growth during the 1990s, Pennsylvania’s inhospitable climate for small business damages its ability to compete. If Pennsylvania is to regain and then strengthen its competitive economic position, it must halt the proliferation of state tax and regulatory requirements that impede new business formation and expansion across the state. To unleash Pennsylvania’s entrepreneurial economy, state lawmakers should:

• Enact faster and deeper tax cuts. This will allow Pennsylvania’s entrepreneurs to allocate more of their money toward capital formation, which is especially crucial as the state considers how best to reverse the current economic downturn.
• Enact a regulatory moratorium and roll back existing regulations. It is not merely enough to hold the line on new regulation. Lawmakers should commit to reducing the regulatory burden on the state’s entrepreneurs, and those regulations that remain should be oriented primarily toward protecting public health and safety.
• Cut state government spending. Pennsylvania is just one of a number of states currently confronting fiscal challenges. State policymakers must resist the temptation to raise taxes as a solution to those challenges and instead find ways to reduce expenditures. Cutting spending now creates more opportunities for capital formation and job creation in Pennsylvania’s private sector economy by reducing the “crowding out” effect of government expenditures.

Pennsylvania’s policymakers must recognize that without a pro-growth business climate, the state’s small businesses will be harmed and economic opportunity for Pennsylvania’s families will be undermined. Unleashing Pennsylvania’s entrepreneurial potential will have positive, longterm consequences for its economy and will help to insulate the state from national economic downturns.