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Report Examines San Diego’s Treatment of Entrepreneurs

Washington, D.C. –In the post-welfare reform world where cities like San Diego are more responsible for moving the poor off welfare and into jobs, a new study released today examines entrepreneurial roadblocks San Diego places in front of entry-level entrepreneurs. Although San Diego’s business climate is more hospitable than many other cities, licensing and credentialing requirements imposed by the city make outlaws out of otherwise industrious low-income people who simply want to earn an honest living.

These are among the conclusions drawn by a new study titled, “Brightening the Beacon: Removing Barriers to Entrepreneurship in San Diego.” The study was released today by the Institute for Justice, a Washington, D.C.-based nonprofit public interest law center that litigates nationwide on behalf of would-be entrepreneurs. “Brightening the Beacon” examines government-created barriers in industries that have traditionally provided a better way of life for the economically disenfranchised. Among the areas featured are: regulatory barriers and zoning, general barriers to entry, child care, transportation, home-based businesses, occupational licensing laws, access to capital, and public education.

“Many of the regulations we uncovered preserve the status quo and protect existing businesses while discouraging those outside the economic mainstream from providing needed services,” said Clint Bolick, the Institute’s litigation director and author of the report. “Economic liberty––the right to pursue an honest living without arbitrary government interference—must be respected by governments at every level.”

Bolick added, “Government policies should have a presumption in favor of honest enterprise, not regulatory constraints.”

Among the specific findings and recommendations are:

Regulatory Barriers & Zoning

Complaints about the zoning process are among the most frequent cited by San Diego business owners and people starting businesses. The zoning process—even for simple matters like obtaining permission for outdoor restaurant seating—can be cumbersome, time-consuming, complex, and expensive. The report recommends that the Office of Small Business and Small Business Advisory Board conduct an audit of all business regula¬tions to determine in each case wheth¬er the regulation is narrowly tailored to fulfill a legiti¬mate governmental objective without unduly hamper¬ing enter¬prise. All ordi¬nances and regulations that do not meet this standard should be repealed.

Barriers to Entry

Many such businesses, such as street vending, require relatively little skill or capital, and should provide plentiful opportunities for entry-level entrepre¬neurs. But even in the post-welfare-reform world, numerous arbitrary regulations remain blocking the efforts of people who want to work. Among other conclusions, this report recommends that San Diego should substantially relax restrictions on street and park vendors, recognizing them as an important and legitimate means of enterprise. The government should also lift the prohibition against street vending outside the downtown and Old Town areas.

Child Care

The report recommends that the city, while ensuring the health and safety of children entrusted to the care of others, prioritize encouraging zoning approval for day-care centers, including programs operated as part of existing businesses. In addition, to remove obstacles to day-care centers in the inner cities, the state should ease indoor space requirements for children in day-care centers, and allow centers that do not have their own outdoor space but are accessible to parks or playgrounds. Finally, the state should eliminate the requirement that day-care providers have formal college-level educa¬tion.

Transportation

Absent regulatory obstacles, private transportation services can provide an excellent opportunity for entry-level entrepreneurship. Taxi¬cabs, jitney vans, and limousines are ideal small enterprises because startup costs are limited to the cost of the vehicle and insurance plus driving skill and knowledge of geogra¬phy. More¬over, private transporta¬tion servic¬es benefit consumers by providing safe and efficient alterna¬tives to highly subsi¬dized public transit. Unfortunately, in many cities this entrepreneurial avenue is thwarted by regulations that exceed legitimate public health and safety objectives. Instead, they protect public transit and established transportation companies from competition. In San Diego, restraints on entry are not as harsh as in some other cities, but they remain unduly restrictive.

The report recommends that San Diego eliminate the de facto ceiling on the number of taxicab permits, allowing the market to determine the number of services rather than insulating existing companies from competition. The report also recommends that taxicabs should be regulated only to the extent necessary to protect public health and safety; e.g. insur¬ance, safety inspections, and driver background check.

Home-Based Businesses

The report recommends that San Diego ease rules on home-based businesses, increasing the permissible number of employees, cus¬tomers by appoint¬ment, and vehicles. In addition, the state should rescind its prohibition of commercial food prepara¬tion in the home, allowing local governments to apply ordinary health requirements to ensure public health and safety.

Occupational Licensing Laws

Occupational licensing laws artificially restrict entry into dozens of professions. Rules for entry into a profession typically are set by licensing boards comprised of members of the regulated profession with the coer¬cive power of government at their dispos¬al. Often the rules far exceed legitimate public health and safety objectives, and instead protect current practi-tioners against competi¬tion from newcomers. Among other suggestions, this report recommends that the State of California should review all occupational licensing laws to (1) determine whether they are necessary at all, or whether private certification instead adequately could protect the public; and (2) ensure that requirements are narrowly tai¬lored to ensure proficiency and to protect public health and safety.

Access to Capital
The largest real-world impediment to most new enterprises is access to capital. The report recommends that the state release economic development lenders from regulations that unnecessarily stifle microloans to new small enterprises. Finally, the San Diego business and philanthropic communities also should lend their acumen and resources to assist prospec¬tive entrepreneurs in developing basic business manage¬ment skills.

Public Education

Undergirding other challenges is perhaps the most systemic barrier to opportunity: the abysmal public educa¬tion system. Although San Diego schools are roughly on par with the state as a whole, that is not saying much: the National Assessment of Education Progress reports that last year, California tied Louisiana for the nation’s lowest reading and mathematics test scores. In the 1993-94 school year, SDUSD reported a 16 per¬cent dropout rate. Test scores of minori¬ty students in San Diego lag behind non-minori¬ties. Because education is the foundation upon which business can flour¬ish, the report recommends that the business and philanthropic communities en¬courage business internship opportunities in the public school system; fund schol¬arships to allow children from low-income families to attend private schools; and sup¬port the creation of new private schools in low-income neighborhoods. It also suggests that the California legislature should adopt the Little Hoover Commission’s recommen¬dations to increase the number, flexibility, and autonomy of charter schools. And finally, it calls for the California legislature to adopt remedial school choice legislation, such as that proposed by Governor Pete Wilson, to allow children in the worst public schools to opt out into private schools.

Over the past year, the Institute released similar studies in six other U.S. cities: Baltimore, Boston, Charlotte, Detroit, New York, and San Antonio.

The Institute has achieved many successes that show the opportunity created when government steps aside and lets otherwise industrious individuals get to work. Among them is the opening up of Denver’s 50-year-old taxi monopoly. The Institute won that battle in 1994 affirming the rights of three minority would-be entrepreneur to start their own company and work for themselves. Today they employ 100 drivers. Institute for Justice attorneys also helped break open closed taxi markets in Indianapolis and Cincinnati, deregulated the District of Columbia’s cosmetology industry, and opening the way for jitney vans to operate in Houston. The Institute is currently litigating in San Diego on behalf of African hairbraiders who are battling onerous state licensing requirements.

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