I’d like to make a few points. From the article:
Competition from producers who don’t pay taxes and licensing fees isn’t fair to the many struggling small businesses who play by the rules. Businesses facing this price pressure should promote the benefits of regulation, he advises, instead of trying to get out from under it.
Amen! It’s not enough for “legit” businesses to say that everyone should have to operate under the burdens of regulation, taxation and licensure. Established businesses should have to justify why anyone should be forced to operate under those restrictions. They can’t be honest about it, because the truth is that many of the hoops new businesses have to jump through exist for the sole purpose of limiting entry into a market.
Licensure is a perfect example. A license requirement limits competition. The harder a license is to get, the fewer competitors you have. That means you can make more money providing the same goods and services. A license is supposed to ensure that the person providing you with a good or service is qualified to do so.
But is a license any guarantee your hairdresser will give you a good haircut? Is it any guarantee your threader won’t mess up your eyebrows?
Barriers to entry hurt the poor the most. First, they drive up prices by limiting competition. Then, they make it harder for the poor to start businesses. Someone with plenty of start-up capital is much less deterred by taxes and licensure requirements than someone who’s struggling to feed themselves. This film addresses the issue.
That’s one reason why Kiva microlending has been so effective in third-world countries but hasn’t seen much success in the first world. In a third-world country, you need far less time, education and money to start a business because there’s so much less bureaucracy to wade through. All they need is enough money for their supplies. One little-considered approach to ending poverty is America is to make it easier for the poor to go into business for themselves.