City Studies

Brightening the Beacon:
Removing Barriers to Entrepreneurship in San Diego

By Clint Bolick [Economic Liberty]

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Executive Summary

Introduction

In many ways San Diego is a model of free enterprise. The city encourages and assists myriad small and fledgling businesses and promotes a vigorous pro-business philosophy. But the city's regulatory reality does not always measure up to its noble aspirations. While the City and County assist start-up enterprises in various ways, it remains difficult for people with little experience or capital to navigate the regulatory thicket. Regulations restricting entry into entry-level occupations like taxicabs and street vending are voluminous, complex, oppressive and anticompetitive. Moreover, governmental jurisdictions are overlapping.

This report examines both San Diego's successes in fostering entrepreneurship as well as the obstacles that remain. On the whole, we find San Diego is far more hospitable to enterprise than many other large cities, and its leaders seem genuinely committed to fostering new and small businesses. Still, too many barriers to entrepreneurship remain. San Diego's overriding challenge is to harmonize its policies and practices with its pro-entrepreneurial philosophy. This report is aimed at helping San Diego identify and remove unnecessary regulatory barriers so that the city can make a reality of its promise of opportunity.

Regulatory Barriers & Zoning

Depending on the type and complexity, the planning process for review of a business application can take anywhere from a few weeks to several months or more. State and local regulations impose no fewer than __ separate requirements before a business can get off the ground.

Complaints about the zoning process are among the most frequent cited by San Diego business owners and people starting businesses. The zoning process-even for simple matters like obtaining permission for outdoor restaurant seating-can be cumbersome, time-consuming, complex, and expensive.

This report recommends that the Office of Small Business and Small Business Advisory Board conduct an audit of all business regulations to determine in each case whether the regulation is narrowly tailored to fulfill a legitimate governmental objective without unduly hampering enterprise. All ordinances and regulations that do not meet this standard should be repealed.

Barriers to Entry

Some businesses are subjected to special regulations that create additional barriers to entry. Many such businesses, such as street vending, require relatively little skill or capital, and should provide plentiful opportunities for entry-level entrepreneurs. But even in the post-welfare-reform world, numerous arbitrary regulations remain blocking the efforts of people who want to work.

Among other conclusions, this report recommends that San Diego should substantially relax restrictions on street and park vendors, recognizing them as an important and legitimate means of enterprise. The government should also lift the prohibition against street vending outside the downtown and Old Town areas.

Child Care

Certainly the State has a strong interest in ensuring the health and safety of children entrusted to the care of others. But not only are small and informal childcare businesses an ideal means of entrepreneurship for people outside the economic mainstream, convenient and affordable child care is a prerequisite for people to be able to work.

This report recommends that the City prioritize encouraging zoning approval for daycare centers, including programs operated as part of existing businesses. In addition, to remove obstacles to daycare centers in the inner cities, the State should ease indoor space requirements for children in daycare centers, and allow centers that do not have their own outdoor space but are accessible to parks or playgrounds. Finally, the State should eliminate the requirement that daycare providers have formal college-level education.

Transportation

Absent regulatory obstacles, private transportation services can provide an excellent opportunity for entry-level entrepreneurship. Taxi-cabs, jitney vans, and limousines are ideal small enterprises because startup costs are limited to the cost of the vehicle and insurance plus driving skill and knowledge of geography. Moreover, private transportation services benefit consumers by providing safe and efficient alternatives to highly subsidized public transit.

Unfortunately, in many cities this entrepreneurial avenue is thwarted by regulations that exceed legitimate public health and safety objectives. Instead, they protect public transit and established transportation companies from competition. In San Diego, restraints on entry are not as harsh as in some other cities, but they remain unduly restrictive.

This report recommends that San Diego eliminate the de facto ceiling on the number of taxicab permits, allowing the market to determine the number of services rather than insulating existing companies from competition. The report also recommends that taxicabs should be regulated only to the extent necessary to protect public health and safety; e.g. insurance, safety inspections, and driver background check.

Home-Based Businesses

Cottage industries were once a mainstay of American enterprise. Those days are returning for advances in technology, increasing number of single-parent families and stay-at-home parents, and other social forces have fomented an explosion of home-based businesses.

While San Diego has a comparatively progressive attitude toward such enterprises, State regulations prohibit such activities as commercial food preparation in the home. That restriction not only precludes home catering businesses, it also prohibits food vendors such as the "tamale ladies" in San Diego's impoverished immigrant neighborhoods.

This report recommends that San Diego ease rules on home-based businesses, increasing the permissible number of employees, customers by appointment, and vehicles. In addition, the State should rescind its prohibition of commercial food preparation in the home, allowing local governments to apply ordinary health requirements to ensure public health and safety.

Occupational Licensing Laws

Occupational licensing laws artificially restrict entry into dozens of professions. Indeed, an entire chapter of the California statutes regulates businesses and professions. Rules for entry into a profession typically are set by licensing boards comprised of members of the regulated profession with the coercive power of government at their disposal. Often the rules far exceed legitimate public health and safety objectives, and instead protect current practitioners against competition from newcomers.

Few people would object to licensing of occupations that require high skill levels or present serious threats to public health or safety. But California's licensing laws extend to many occupations that could be privately regulated, such as land surveyors, landscape architects, interior designers, and court reporters. These regulations on entry unnecessarily limit competition, particularly among those who have few economic resources to combat the legalized cartels.

Among other suggestions, this report recommends that the State of California should review all occupational licensing laws to (1) determine whether they are necessary at all, or whether private certification instead adequately could protect the public; and (2) ensure that requirements are narrowly tailored to ensure proficiency and to protect public health and safety.

Access to Capital

The largest real-world impediment to most new enterprises is access to capital. Banks rarely make small business loans to start-up enterprises, particularly to those that have no collateral or credit history.

This report recommends that the State release economic development lenders from regulations that unnecessarily stifle microloans to new small enterprises. Finally, the San Diego business and philanthropic communities also should lend their acumen and resources to assist prospective entrepreneurs in developing basic business management skills.

Public Education

Undergirding other challenges is perhaps the most systemic barrier to opportunity: the abysmal public education system. Although San Diego schools are roughly on par with the state as a whole, that is not saying much: the National Assessment of Education Progress reports that last year, California tied Louisiana for the nation's lowest reading and mathematics test scores. In the 1993-94 school year, SDUSD reported a 16 percent dropout rate. Test scores of minority students in San Diego lag behind non-minorities.

Because education is the foundation upon which business can flourish, the report recommends that the business and philanthropic communities encourage business internship opportunities in the public school system; fund scholarships to allow children from low-income families to attend private schools; and support the creation of new private schools in low-income neighborhoods. The California legislature should adopt the Little Hoover Commission's recommendations to increase the number, flexibility, and autonomy of charter schools. And finally, the California legislature should adopt remedial school choice legislation, such as that proposed by Governor Pete Wilson, to allow children in the worst public schools to opt out into private schools.

This report presents concrete actions that can be taken-by the City of San Diego, the State of California and business leaders-to open opportunities and strengthen substantially the region's economic base. The dominant regulatory philosophy should be that businesses are good for the community, and that whatever regulations are necessary should impede entrepreneurship as little as possible.

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