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America’s New Business Plan: Access to Opportunity

A LEVEL PLAYING FIELD Without RED TAPE

Starting a business is hard for anyone. But the challenge is magnified for people of color, women, and rural residents. Policymakers need to do more to break down barriers to starting businesses for all entrepreneurs, and to correct for disadvantages based on race, gender, and geography by leveling the playing field. 

While policymakers have long highlighted the importance of small businesses to local economies, this talk has not translated to sufficient action. Far too frequently, the needs of more dominant businesses are prioritized over the needs of new and small businesses, putting all entrepreneurs at a disadvantage.

Unfortunately, government red tape, market concentration, and the outsized influence of established businesses too often conspire to block entrepreneurs from fulfilling their dreams of starting or growing their businesses. Many entrepreneurs encounter a confusing web of outdated regulations, ordinances, and permits. And unlike big, established corporations, entrepreneurs lack the means to hire teams of consultants, attorneys, and lobbyists to shape and navigate these complicated systems. During the COVID-19 pandemic, 52% of entrepreneurs with a business under a year old identified laws, policies, and regulations as a challenge.

Entrepreneurs must also increasingly compete against powerful firms that dominate entire industries, especially online platforms that can set the terms between customers and the smaller businesses that rely on them. More than one in four independent business owners and one-third of retailers believe mergers in their industries are “creating an unfair playing field” and two-thirds say antitrust laws need to be more vigorously enforced. Data suggest they are correct: Research shows that increases in concentration and reduced entrepreneurial dynamism move in tandem. Between 2006 and 2016, the proportion of newly launched businesses as a share of all employer firms fell from just over 10% to nearly 7%. And from 2010 to 2014, as concentration became more acute, the creation of net new businesses in five metro areas was equal to that in the rest of America.

Policymakers need a new mindset that is committed to leveling the playing field between new and established businesses – particularly the most powerful businesses. Among other things, economic development policies should be overhauled. Billions of dollars are spent annually by state and local governments to attract existing businesses to relocate to their state or city, but comparatively few dollars are spent on supporting new, homegrown businesses. Unsurprisingly, 74% of entrepreneurs believe government prioritizes large corporations over small businesses. When it comes to ensuring markets are fair and competitive, this sentiment also holds true. Policymakers have long avoided policing anti-competitive conduct from powerful firms or limiting mergers that are likely to weaken fair competition.

New businesses are difficult enough to get off the ground; policymakers can help by removing barriers and leveling the playing field.

What can policymakers do?