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Regulatory Climate Index 2014

By Jake Auchincloss

This post is part of the Regulatory Reform for the 21st Century City project.

A small business in Dallas can secure a construction permit in 50 days, for just under $10,000. Its twin in San Francisco? More than six months at ten times the cost.

The U.S. Chamber of Commerce Foundation released its 2014 Regulatory Climate Index at the Harvard Kennedy School earlier this week. The Index assesses five areas of regulation that a typical small business encounters as it opens and operates across ten major cities in the United States. The cities are scored by the cost, time, and number of procedures necessary to (a) start a business, (b) deal with construction permits, (c) register property, (d) pay taxes, and (e) enforce contracts.

Harvard Professor Edward Glaeser, who moderated a panel discussion of the findings, presented evidence that the number of small firms within cities is an accurate proxy for the entrepreneurial activity that is critical to their long-term job growth; he further observed that those cities with pro-business and pro-housing policies tend to have a larger number of small firms. The Index is intended to serve as a barometer of the “pro-business” dimension.

Michael Hendrix, the project director of the Index and one of the panelists, urged state and municipal regulators to take a “Moneyball” approach that embraces cost-benefit analysis, which the federal government has been using for decades. Cities should take the lead in making regulations more sensible and efficient, he argued, because the linear causation is compelling: regulations matter a lot to small businesses, and small businesses matter a lot to municipal economies.

Without complementary efforts at the state level, though, streamlining reforms will plateau. The diversity of state regulatory burdens to which cities are beholden, Mr. Hendrix pointed out, is one of many reasons why the Index is more useful to benchmark an individual city’s progress over time instead of comparing cities to each other. The variance in tax rates and construction permitting between Dallas and San Francisco, for example, reflects exogenous variables like the lower tax burden in Texas versus California, the greater amount of buildable land available to Dallas, and the premium for earthquake-proofing in San Francisco.

With this caveat, the Index ranked the regulatory climates of the ten cities in the sample from most to least small-business friendly: Dallas, St. Louis, Raleigh, Boston, Atlanta, Detroit, Chicago, Los Angeles, San Francisco, New York City. Panelist and Boston City Councilor-at-Large Michelle Wu, who has been spearheading regulatory reform efforts in the City Council since taking office in January, promised that Boston would improve upon the 73.3 overall score it received this year.

Councilor Wu envisioned effective regulation as unambiguously delineating an “outward shell” of what is permissible, with everything inside the lines open to innovation. Currently, she said, the converse is too often true: the frontier is hazily defined, while “landmines” are scattered throughout the small-business terrain.

Topics: Regulation

About the Author

Jake Auchincloss

Jake Auchincloss is a research assistant at the Ash Center and a dual degree candidate at the MIT Sloan School of Management and the Harvard Kennedy School of Government. He served as an infantry officer in the Marine Corps after graduating with a bachelor's degree in government and economics from Harvard.

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