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By Liya Palagashvili, From the US News + World Report http://www.usnews.com/opinion/economic-intelligence/2015/04/15/us-regulations-and-taxes-stifling-entrepreneurs
The current state of entrepreneurship is receiving considerable attention as debate simmers around questions of business dynamism in the United States. According to a Gallup article, the U.S. has dropped to 12th among developed nations in terms of business startups. Economists also recentlyfound evidence for this downward trend in business activity and attribute it to diminished incentives for entrepreneurs to start new firms.
This raises some questions: What exactly are the factors leading to the decline in business activity in the United States? And what can be done to revive the American entrepreneurial environment?
Economists identify the costs imposed on entrepreneurs by the regulatory environment as one of the most important influences on business dynamism. Where regulations make it difficult to start and operate businesses, entrepreneurs have a difficult time bringing new ideas and innovations to fruition. Promising entrepreneurs who face burdensome regulations might opt out of doing business or decide to take their ideas to countries with more favorable business climates.
Burdensome regulations such as credit and labor-market regulations, business taxes and start-up costs – like the number of procedures, payments and minimum capital requirements to start a business – all influence individuals' decisions to engage in entrepreneurial activity. Is it costly to start a business? Am I even allowed to start a business? Will my business entail high labor costs? Can I easily fire bad or redundant workers?
In the "Doing Business" index, the United States ranked poorly in the business taxes component because the costs to file, prepare and pay taxes as business owners represent about 44 percent of business profits. According to the "Economic Freedom of the World Index," firms' business bureaucracy costs have significantly increased in the last 10 years, meaning that it is becoming increasingly more difficult for entrepreneurs to start companies or to continue running their companies without facing substantial administrative and bureaucratic obstacles. [SEE: Political Cartoons on the Economy]
These trends pose a long-term problem. If a favorable entrepreneurial environment is eroding, what will become of economic prosperity for future Americans?
This and many other questions surrounding the conditions for entrepreneurial activity and long-term economic growth are carefully addressed in a new and comprehensive book edited by Donald Boudreaux and published by The Fraser Institute on "What America's Decline in Economic Freedom Means for Entrepreneurship and Prosperity." The essays in the book emphasize the importance of a thriving business environment and analyze how such things as the proliferation of regulation and deterioration of the rule of law disproportionately harm entrepreneurs and small businesses.
The book also addresses the role of entrepreneurship and small businesses in job creation and promoting economic growth and prosperity. People living in the United States and much of the developed world today experience significantly higher standards of living because entrepreneurs continuously introduce and improve market products – not only items such as personal computers and cell phones, but new medicines, better clothing and other technologies that improve ordinary people's daily lives.
New technological improvements are sparked when entrepreneurs are able to reap the benefits of their innovations, and business entry is high when start-up costs are low. Efforts to foster business activity and these entrepreneurial processes should not focus on particular businesses, corporations or people. Instead, such efforts should strive to create an environment that allows for entrepreneurial activity of all kinds to thrive.