As job creation stalls, state analysis indicates regulation cutbacks could help

With the long-term unemployed making up a larger percentage of the population here than in any other New England state, it’s time for Connecticut to boost the small-business climate by reducing unnecessary and antiquated regulations, according to a statewide report released today.

An article in The Connecticut Economy, a quarterly publication produced by economists at the University of Connecticut, points out that businesses with fewer than 500 employees are on the decline in the state. Between 1996 and 2006, the state lost 1,700 small employers, or about 2.2 percent of the businesses in this category, while the nation as a whole gained 10 percent.

That’s the third worst performance in small-business growth among the nation’s 50 states. Only West Virginia and Ohio have worse records in creating small businesses.

A UConn economist writing in the quarterly report blames excessive regulations – and perhaps overly aggressive enforcement of unnecessary rules as well as costly delays in getting approvals – for the lack of business creation.

“Connecticut places more constraints than average on its businesses,” said Steven P. Lanza, executive editor of The Connecticut Economy and author of an article published today that explores the effect of the state’s regulatory environment. “If small-employer growth is the goal, how much regulation is too much? What could Connecticut stand to gain by easing its regulatory burden and making itself more busi­ness-friendly?”

The answers to these questions have important consequences for Connecticut’s economy, particularly in the realm of job creation, Lanza argues.

And, despite Gov. Dannel P. Malloy’s stated position of making job creation a priority of his administration, the UConn report predicts that fewer than 5,000 new positions will be created in the state over the next year. This prediction could be optimistic if the national economy doesn’t grow as expected, or it could be an underestimate if President Barack Obama’s $447 billion plan to boost jobs gains traction in Congress.

“The state can expect to see jobs stall in the next few quarters before picking up some steam later next year,” Lanza said in a separate article in the quarterly.

Lanza said the state could start turning its economy around by embracing fewer regulations. While regulations appear to help companies when they reduce uncertainty in a given field, he said, an analysis shows that too many rules can be bad for businesses.

And Connecticut, depending on the analysis performed, either ranks No. 42 or 43 in the regulatory burden it places on business among the 50 states. Lanza said Connecticut has exacting labor standards, with a high minimum wage, mandatory workers’ compensation and special licensing procedures for more occupations than in any other state.

“In the extreme,” Lanza wrote, “government regulations can yield a bewildering knot of red tape that can stymie even the most enterprising of business people or afford a privileged status to the politically connected few.”

Lanza said small businesses, particularly, can fall prey to onerous regulations because they have fewer resources available to wade through the red tape.

Lanza pointed to one-time presidential contender and former U.S. Sen. George McGovern, who tried to run an inn and conference center in Stratford many years ago, as a typical example of someone who tried and failed to run a business in Connecticut. McGovern, who was known to be in favor of heavy regulation of business before his experience, later decried the burdens he and others were under as they tried to make a go of their own enterprises.

“Doing business in Connecticut isn’t easy, even for someone with an extensive Rolodex and decades of experience in the trenches,” Lanza concluded.




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