New Report Documents How Chicago Blocks New Businesses

Chicago—Want to create a job in Chicago? It is not that easy.

Especially in such tough economic times, people may be shocked to discover the lengths the city of Chicago and the state of Illinois go to to discourage entrepreneurs who seek to create jobs for themselves and others. A new report released today by the Institute for Justice Clinic on Entrepreneurship documents how government regulations:

• Force child play centers—where parents and caregivers play with their own kids—to go through the same licensing process as strip clubs. In addition to having to cut through massive amounts of red tape and pay a fee of at least $770, particularly problematic for child play centers in Chicago is the requirement that such centers provide a valid lease for the premises before they open, meaning entrepreneurs have no choice but to take a high-stakes gamble and pay rent on a shuttered business for months while waiting for the city’s permission to open. Rick Miller, owner of Day Frog—a child play center now located in downtown Chicago—found this licensing maze anything but child’s play. His license was initially denied because his facility for kids was located across the street from Northwestern Memorial Hospital, which he hoped to serve.

• Hinder home-based businesses in the city by imposing a laundry list of restrictions. The city bars more than one person who doesn’t live in the home from working there; prohibits the assembly of products (like jewelry or greeting cards) in homes to be sold elsewhere; caps the number of customers a home-based business can serve to two at any time and 10 in a day; prohibits the display of products on shelves or racks in a home; and bans the sale of so much as a cupcake from even the cleanest of home kitchens. Many thriving Chicago entrepreneurs—such as Shawnimals plush toy creator Shawn Smith and Katrina Markoff, owner/chocolatier of Vosges Haut-Chocolat—had to flout the law to start their businesses.

• Hamstring would-be street vendors—a traditional occupation for the poor trying to raise themselves up—by barring vendors from wide swaths of the city. Chicago tightly restricts even constitutionally protected vending of books and art, and bans outright the sale of flowers on the street.

“The sheer volume, cost and complexity of regulations on small businesses in Chicago is head-spinning,” said Elizabeth Milnikel, co-author of Regulatory Field: Burdensome Laws Strike Out Chicago Entrepreneurs and director of the Institute for Justice Clinic on Entrepreneurship, which operates out of the University of Chicago Law School. A copy of the study is available online at: http://www.ij.org/ChicagoCityStudy. “Among the most corrupting and stifling of the restrictions is the veto power aldermen can exercise over the entrepreneurial aspirations of anyone in their ward—the power to kill a small-business person’s American Dream before it can even get started. Getting into business in Chicago shouldn’t require someone to kiss the alderman’s ring. The marketplace—and not the government—is best able to decide if a business will succeed.”

According to the Bureau of Labor Statistics, the unemployment rate in the Chicago metropolitan area rose from 5.6 percent in March 2008 to 9.4 percent in March 2009. The area lost 157,600 jobs, the third-highest job loss among the more than 300 metro areas that reported such statistics nationwide.

“Our report examines government-created barriers in industries that have traditionally provided a better way of life for the economically disenfranchised,” said co-author Emily Satterthwaite, assistant director for the IJ Clinic. “Economic liberty––the right to pursue an honest living without arbitrary government interference—must be respected by governments at every level. Government policies should aim to foster honest enterprise, not layer regulation over stifling regulation.”

Among the Chicago regulatory burdens examined in the report are those dealing with: home-based businesses, food service providers, street vendors, child play centers, retail computing centers and commercial parking restrictions. The study also looks at state laws that license: barbers, African hairbraiders, nail technicians, landscape designers/contractors, engineers and moving companies. The report is filled with the real-life stories of Chicago entrepreneurs who want to do nothing more than earn an honest living, but find government regulations standing in their way.

The authors recommend that the city of Chicago:

• Review every fee and paperwork requirement in the Municipal Code to reduce the burden on entrepreneurs to the amount that is absolutely necessary to protect public safety.
• Remove aldermanic discretion from the license and permit-application processes, so that favoritism and corruption cannot squeeze out promising entrepreneurs.
• Rewrite the laws on home-based businesses, so that Chicago allows all industrious people to work from home as long as they are doing no harm to their neighbors.
• Streamline requirements for food businesses and reduce fees. Permit food preparation in home kitchens as long as they pass a reasonable and objective inspection.
• Throw out the incomprehensible prohibitions on peddling in certain districts.
• Allow people to sell art and flowers and fruits freely. Permit traditional eloteros to serve customers prepared fruits and vegetables on the street.
• Reform the definition of “public place of amusement,” so small, neighborhood-friendly businesses, like child play centers, are not caught up in an obstacle course of regulatory requirements that sucks away time and money for no discernible reason.
• Do away with the license for retail computing centers altogether. Welcome entrepreneurs who encourage computer literacy and bridge the digital divide. Let them charge their customers in the way that makes sense for their businesses.
• Remove restrictions on parking for tradespeople who drive ordinary-sized vehicles and need to park near customers and near home.

The authors recommend the following reforms to Illinois law to open opportunities to talented people throughout the state without giving competitors a veto over new businesses:

• Limit qualifications for barbers, braiders and nail techs to those necessary for public safety. Drastically reduce the hours of schooling required (if any), and cancel continuing education requirements. Allow customers to decide who is qualified. Do not let a panel of insiders decide.
• Let people truthfully tell others what they do for a living. Reform all professional regulations that include “titling acts” like those covering landscape architects, interior designers, and engineers. The General Assembly should not enact anti-competitive laws at the behest of industry lobbyists.
• Overhaul the law authorizing household goods movers within Illinois, so no more is required than registration and proof of insurance. Cut the competitors out of the process and repeal requirements that a company prove that its services are “necessary” before it can open.

Over the past dozen years, the Institute for Justice released similar studies examining regulatory barriers to entrepreneurship in: Baltimore, Boston, Charlotte, Detroit, New York, San Antonio and San Diego. Upcoming reports are now being written for: Atlanta, Denver, Houston, Los Angeles, Miami, Milwaukee, Newark, Phoenix and Washington, D.C.

Since its founding in 1991, the Arlington, Va.,-based Institute for Justice has achieved a long record of successes on behalf of entrepreneurs who faced senseless government-imposed restrictions on their occupations. Among its economic liberty successes, the Institute for Justice:

• Earned a U.S. Supreme Court victory in 2005 that struck down New York’s discriminatory state wine shipping laws, which hampered small, out-of-state wineries as well as their consumers.
• Secured the first federal appeals court victory for economic liberty since the New Deal, this on behalf of Tennessee casket sellers.
• Freed African hairbraiders from onerous licensing requirements in Arizona, California, Minnesota, Mississippi, Washington, D.C., and Washington.
• Opened taxi markets to new competition in Cincinnati, Denver, Indianapolis and Minneapolis.
• Opened the limousine market in Las Vegas.
• Preserved the jitney van market in New York City.
• Ended anti-competitive speech restrictions on interior designers in Arizona and New Mexico.
• Successfully challenged Arizona’s licensing requirements on gardeners and landscape maintenance workers that once required them to obtain three separate licenses simply to kill weeds with over-the-counter products, and defeated the same now-dissolved government agency that tried to require a 16-year-old entrepreneur to become licensed before he performed basic handyman services.
• Eliminated real estate broker licensing requirements for real estate websites in California and New Hampshire.
• Defeated an absurd New Orleans ordinance that prohibited booksellers from selling books on city sidewalks without a government-issued permit—a permit that the city wouldn’t issue because it didn’t exist.

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[NOTE: To arrange interviews on this subject, journalists may call John Kramer at (703) 682-9320 ext. 205 or in the evening/weekend at (703) 527-8730. Chicago report available at: http://www.ij.org/ChicagoCityStudy.]