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CT Third Worst In Small Business Growth; Regulation May Be Part of The Problem

by | Sep 14, 2011 11:01am () Comments | Commenting has expired | Share
Posted to: Business, State Capitol

Connecticut’s economy may be in slow motion, but it’s doing better than some of the other New England states, the latest edition of the Connecticut Economy found. That’s the good news. The bad news is the state is third to last in small business growth.

Currently, there are about 75,000 small businesses in that state that account for nearly 98 percent of the state’s employers and half its private-sector jobs, according to the latest (2006) U.S. Commerce Department data. The vast majority or 88 percent of these businesses have fewer than 20 employees, Steven Lanza, executive editor of the Connecticut Economy said Wednesday.

Looking at data from 1996 to 2006 Connecticut has one of the worst records in terms of small business growth.

“We’re third worst after West Virginia and Ohio,“ Lanza said. “Small businesses actually contracted by about 3 percent over that 10 year period while they grew everywhere else.”

There are a number of variables which impact small business growth including percentage of foreign born citizens, the age of residents, unemployment rate, education, tax rate, and how well states do at providing small business loans.

“All of these things, literature has shown are important factors,” Lanza said.

But a 1992 editorial to the Wall Street Journal written by former U.S. Sen. George McGovern, who owned a small business in Stratford, Conn. suggests regulation also play a role in small business growth.

For his piece in the Connecticut Economy, Lanza said he tried to create an index similar to one created by William Ruger of Texas State University and Jason Sorens of SUNY Buffalo, which ranks states based on 200 public policies each state employs.

Connecticut ranks 42nd, which makes it one of the 10 worst states for regulation, on the Ruger/Soren index. On Lanza’s index of regulations Connecticut does even worse coming in 43rd.

Why does Connecticut rank so low?

Like most New England states Connecticut has fairly exacting labor standards—it has a relatively high minimum wage, a prevailing wage law, mandatory workers’ compensation, and it is a non-right-to-work jurisdiction, Lanza wrote in his article on the subject.

Connecticut also requires special licensing for more occupations than any other state, including massage therapists, athletic trainers, and TV and radio technicians. And, it has “fairly rigorous land use standards marked by a significant state (verses local) role in land use planning,” Lanza wrote.

However, Lanza said the relationship with regulation is complex because some regulation helps induce markets.

“Like traffic lights there needs to be some rules of the road,” Lanza said. “But Connecticut is on the wrong side of the curve when it comes to regulation.”

He said the state needs to look at its regulations and get rid of the outdated ones, which seems to stay on the books for perpetuity. He said it’s possible some of these older regulations may conflict with newer ones which can cause unfair enforcement.

Peter Gioia, vice president and economist with the Connecticut Business and Industry Association, said his organization hears all the time about overregulation and the arbitrary enforcement of regulations.

“There’s nothing worse for business than to have no sense of what to expect,” Lanza said.

He said he can’t imagine anything worse for business growth than arbitrary and capricious enforcement.

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(8) Archived Comments

posted by: Dimitar Naydenov | September 14, 2011  11:57am

The key word is not regulation but overregulation. Regulation is good as long as it doesn’t get too far. There are regulations that are good for the economy such as outlawing collusion, requiring registration for certain business entities (such as limited partnerships and corporations) with the Secretary of the State, and outlawing employment based on discrimination to name a few. Steven Lanza said it well, as you quoted him at the end of the article.

posted by: GoatBoyPHD | September 14, 2011  12:21pm

GoatBoyPHD

Stagnant population growth is reason 1.

Look at downtown Hartford. 

A bar/restaurants or small business closes and another opens in the same place. With a stagnant population it’s more a question of the right businesses , the right business model not more businesses.

Then there’s the sprawl of category killers like Best Buy or the Walmarts into the Simsbury and Torringtons areas killing small business.

Then there’s the out sourcing trend that hollwed out a large number of maufacturing support busnesses and IT support businesses.

What works?

Capital infusion trades for stock ownership in small businesses.

Expand CT Innovations.

Include local microloans.

Make it what the Small Business Association aspired to be but never could be. Mentoring, Netowrking, Capital and evening seminars where a business formation happens in 3 hours. All the forms and approvals completed approved and temporary permits given.

Regulation is a piece of he puzzle but not the driver. Make business capital and formation easy.

posted by: Disgruntled | September 14, 2011  12:22pm

The Nutmeg King should open the state checkbook and write FIRST FIVE JIVE checks to the real job creators—small business.

posted by: DirtyJobsGUy | September 14, 2011  1:02pm

I run a small consulting business in CT that does worldwide work for electric power stations.  We need a good airport with good roads to get there on.  We also need a reasonable regulation load.  Although most of these regulations don’t cost us much directly, the indirect cost is very high.  We need to hire accountants, lawyers and administrative staff to handle them but more importantly they take our time.  Every hour we spend on compliance is an unbilled hour with and effective loss of another hour in inefficiency.  The state gets no or little additional revenue and no one is protected from nefarious management.

Add to this a high income and property tax and relocation is a real option.

Plus there is the implied attitude that the State and Local governments could care less if we succeed so long as we pay and pay.  Eventually if we are not wanted we’ll go somewhere that does want us.

posted by: ... | September 14, 2011  1:39pm

...

Great article by the Connecticut Economy. I’ve not taken the time to read it since the Spring.

Hopefully the Fall Special Session will try to reduce, or refine regulations so they are more clear and expectant for small businesses.

posted by: Lawrence | September 14, 2011  7:09pm

We have a high minimujm wage becasue CT has a high cost of living.

And requiring plumbers and electricians and others to have licenses is a burden?

Then move to Alabama or wherever and enjoy your license-free home and auto repairs… I want quality work for my money, not some self-taught barber or backhoe operator.

posted by: OutOfOutrage | September 15, 2011  8:58am

OutOfOutrage

HAHAH! If you think that being licensed in this state means anything you are dreaming! Any jerk with a hammer can call himself a contractor and get a license to prove it.  The license requirement is about revenue, not about qualified tradesmen.  If the state wanted skilled tradespeople they could accomplish that by requiring strict standards, experience and testing before issuing a license but that is not the goal.  The goal is to make it as easy as possible so that everyone can pay to play.

posted by: Victoria1555 | September 19, 2011  11:15am

I hear CT is one of the worst states to run a business, therefore I are leaving a.s.a.p. I feel bad for those who can’t leave - then who is going to pay all those tax increases.

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