With the Michigan government lifting all COVID-19 orders on public gatherings and mask requirements, the state economy is poised to recover from public health restrictions imposed by the government. It comes after Governor Gretchen Whitmer unilaterally issued nearly 200 Executive orders suspend, review and modify the main public policies having a direct impact on the behavior of the 10 million citizens and state enterprises. However, this is only the beginning of the regulatory challenge for Michigan small and medium business owners and entrepreneurs planning to fully reopen or start a new business.
Michigan is only one of eight states to report economic status decline above 5 percent in 2020. In addition, the state’s economic output declined 5.4 percent, from $ 471.6 billion in 2019 to $ 446.2 billion in 2020. unemployment rate for May 2021 remained 27% higher than before the February 2020 pandemic, and total employment is down 5.6% over the same period.
Although there is evidence, the Biden administration plans to increase regulation and raising taxes on U.S. businesses, that doesn’t mean state and local governments are powerless to ease potentially negative federal regulatory barriers to entrepreneurship and economic growth at the state level. And for Michigan, a recent study undertaken by Chris Edwards, director of tax policy studies at the Cato Libertarian Institute, offers insight into what state entrepreneurs face when it comes to overcoming state and local government regulatory hurdles when starting a new business.
A useful output of this study is the Entrepreneur Regulatory Barriers Index, an empirical calculation based on 17 variables in four general categories of regulatory restrictions. The variables (converted to a standardized score using a formula) measure the restrictions and costs imposed on new businesses in each state, while the four categories consist of small business views (three variables), professional licenses (two variables), other entry barriers (five variables) and costs created by regulation (seven variables).
So how does Michigan stack up against other states in this index? Unfortunately, not well. Michigan ranks 36th out of 50 states, at the bottom of the third quartile. What stands out are the results of the first category – small business views on regulation. While the Michigan government scores relatively high (on a choice scale of “F to A +”) (“B” among respondents on the “ease of starting a business” variable, the state has a lot of leeway. of progression for two variables, “labor and hiring laws” (“D +”) and “licensing laws” (“C-”). Regarding the category “other barriers to entry”, Michigan requires a “certificate of need” for the healthcare industry and is a liquor license quota and alcohol control state. “Whatever happens in Washington, state and local governments can do a lot to improve the business climate by repealing low-value and harmful regulations,” says Cato’s Edwards.
A starting point for the Michigan state government could be Analyzing state professional licensing laws to assess which professions need public regulation, and if so, what type (or “level”) of public regulation is necessary and effective. Such regulatory review of licensing requirements could reduce the cost of entry (a “barrier to entry”) into a trade, and potentially increase competition and lower the cost of service to the consumer.
A second initiative would be to consider the creation of a “regulatory sandbox” at the state level. In March 2021, Utah became the first state adopt bipartite legislation creating an “all-inclusive” or all-industry regulatory sandbox. A regulatory sandbox is a defined environment where innovative companies can safely experiment under the oversight and guidance of regulatory bodies. By reducing the initial regulatory costs for entering entrepreneurs, these early stage companies have the opportunity to become competitors capable of handling normal compliance costs, after which they “step out” of the regulatory sandbox. After the pandemic, this all-inclusive regulatory sandbox initiative would be a proposal that deserves serious consideration by the Michigan legislature.
In September 2020, Yelp Economic impact report estimated that 60% of businesses closed due to COVID-19 state and local government regulatory requirements would be closed permanently. There is no reason to believe that Michigan has not experienced similar business closure rates as the rest of the country. Now is the time for the Michigan Legislature and Governor Whitmer to come up with innovative bipartisan public policy initiatives to help the small and medium-sized businesses and entrepreneurs in the state who have been the businesses hardest hit by the effects of COVID- 19. Over the longer term, Michigan needs to develop its reputation as a destination state for entrepreneurs, and a more supportive regulatory environment will go a long way in achieving this.