Regulations Should Help, Not Hinder, Small Business Growth

By Josiah Dalke
June 14, 2021

The whole point of the American Dream and our free-market system in America is that people from all walks of life have the opportunity to dictate the direction of their own lives.

The entrepreneur is perhaps the most quintessential example of this sentiment. If someone has an innovative and marketable idea that helps people live better lives, America is supposed to be structured so that he can build off that idea.

However, despite this concept of entrepreneurship being inseparable from the American ethos, small businesses are continually struggling to enter the marketplace in an environment that favors big businesses that can weather the regulations and red tape much easier. This creates what some have called an economic "kill zone" for small businesses as they attempt to grow.

Some may suggest that this is a justification for the further institution of government regulation to ensure a "free" and competitive system. However, the solution may rather be the opposite: eliminating and reforming regulations that have hindered startups and small businesses from gaining the capital required to succeed.

Even before the Covid-19 pandemic, small businesses and startups have struggled with gaining enough capital to find a footing with their respective business plans. Although the pandemic has widespread effects that have been felt by businesses of all sizes, for many larger corporations it has been merely a speed bump

However, the pandemic exasperated the problems that small businesses already face. In the wake of government-imposed lockdowns and their collateral effects, unforeseen obstacles have left many of them crippled. This is especially true regarding the issue of raising capital.

As an issue compounded by the pandemic, the inability to obtain sufficient credit from banks was already one of the biggest problems small businesses face. Since the financial crisis in the late 2000s, government policy has imposed regulations that seek to protect the economy from poor financial investments. 

However, as time progresses, large corporations benefit from low-interest loans, while small businesses and startups are left dependent on government assistance programs.

Regulations may seem like the answer, but they often have the effect of bringing about unintended consequences. Just last year, the NFIB Research Center conducted a study asking small businesses what the 75 most important issues that they faced were. 

The first three issues were health insurance, finding and retaining good employees, and taxes, respectively. The fourth biggest issue was unreasonable government regulations that leave them effectively crippled in needless expenses and red tape. While these regulations may appear to be placed to protect our economic system, the reality is that regulations often harm the economy they are supposed to protect.

Some may suggest that the Covid pandemic has helped businesses push the reset button on the government regulation problem by forcing them to move to alternative business platforms such as the internet and by benefiting from government assistance. 

However, any sort of solution that is specific to the pandemic can only be temporary at best and leaves entrepreneurs reliant on the government at worst. In order to move ahead on promoting entrepreneurship, public policy should not perceive regulations as the tool to promote freedom. 

If the goal is for startups to get the credit and capital they need, policies should permit lenders to take the calculated risk, without the government dictating how it is supposed to operate on every level. If small businesses are to benefit from a free market, then it needs to be free!

Josiah Dalke is a Research Intern with the Mississippi Center for Public Policy. He is a Washington State native seeking a government degree at Patrick Henry College.


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