Arguably, land use controls have a more widespread impact on the lives of ordinary Americans than any other regulation. These controls, typically imposed by localities, make housing more expensive and restrict the growth of America’s most successful metropolitan areas. These regulations have accreted over time with virtually no cost-benefit analysis. Restricting growth is often locally popular. Promoting affordability is hardly a financially attractive aim for someone who owns a home. Yet the maze of local land use controls imposes costs on outsiders, and on the American economy as a whole.
From The Brookings Institute comes an excellent description of the insidiousness of land use regulations. There’s a tremendous amount of negative that has trickled down from these regulations, and what benefit there has been accrues overwhelmingly to the large landholders and real estate development companies that either have the political clout to influence them or can sustain the overhead necessary to navigate them.
Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities.
The changes reflect broader, more permanent shifts, including an aging population and the new dominance of large corporations in many industries. They also may help explain the increasingly sluggish economic recoveries after the past three recessions, experts said.
Stephen Bainbridge added some thoughts as to why entrepreneurship is declining. He writes, “First, the dearth of US citizens pursuing careers in science and engineering. Second, the impact of law and regulation.” A lot of folks seem to be echoing his first point. I don’t buy it, and will share more about why at the end of this post. But, I completely agree about the second point. Bainbridge elaborates:
When you add up the growing costs of regulation and the growing risk of litigation, there’s no wonder smaller firms and start ups struggle. Only big firms can achieve the sort of economies of scale that make such costs bearable.
Regulation and litigation are absolutely stifling the growth of new businesses, and completely favoring large, established corporations. I’ve written some about that (here and here and here and here), and many other people have as well. Even so, all the bellyaching doesn’t seem to be altering the growth trajectory of litigation and regulation.
Here are a few more reasons why I believe entrepreneurship is on the decline: