Cities Need More Innovation, Not Regulation
It is official—Bill de Blasio will be New York City’s first Democratic mayor since David Dinkins stepped down in 1993. What is clear from Tuesday’s overwhelming victory is that New Yorkers want change. They fared well over the past 12
years under Mayor Michael Bloomberg’s leadership, but New Yorkers did not think that all of Bloomberg’s ideas were right for the city. From his laughable ban on supersized sodas to his controversial policing tactics, many of Bloomberg’s policies divided New York.
One way that mayor-elect de Blasio can begin mending the “tale of two cities,” a major theme of his campaign, is by actively pursuing some policies where he and his opponent found common ground. The bitterness of the election overshadowed both candidates’ support of cutting red tape and fines for small businesses.
Joseph Lhota was painted as the second coming of Mayor Bloomberg, but this is an oversimplification to say the least. A central tenet of Mr. Lhota’s campaign was New York’s over-regulation during the Bloomberg years. These regulations did not affect just the one percent; they made, and continue to make, life more difficult for all New Yorkers by stifling the innovation necessary for economic growth. According to a national study by the National Federation of Independent Business, 21 percent of small businesses named “government requirements and red tape” as their worst problem, the top response.
Mr. Lhota said the Bloomberg administration treated the city’s 200,000 small businesses “like an A.T.M. machine,” levying fines on everything from forgetting to affix a price tag on one item to improperly labeling haircut prices based on gender. Fine-based revenue from 20 City agencies equaled $800 million last year—double 2002’s amount. The Department of Health and Mental Hygiene has seen its revenue from fines increase over 450 percent, to $45.6 million, over that time.
Mr. Lhota wanted to pursue a different strategy. He called for a review of every fine and fee imposed by the City of New York. Each would have to be justified, not as a revenue source, but as a means to protect consumers.
As the city’s public advocate since 2010, reforms such as these are right up Mr. de Blasio’s alley. He even called for forming a Regulatory Review Panel to eliminate outdated and abused regulations. As he should know, regulations are meant to protect the public. That is why governments regulate who can perform open heart surgery and require restaurants to maintain certain levels of cleanliness. However, when regulations lose their focus, and become hindrances to growth, they harm rather than protect the public.
Walking down Roosevelt Avenue in Queens, as I did on Tuesday, one can see that the small business owners who are being hurt by cash-sapping regulations are not Wall Street elites. They are typical families with entrepreneurial drive and love for their neighborhoods. The amount of competition—three empanada stands within two blocks—is enough to limit profits to modest levels. There is no need for city officials to make life more difficult by fining owners. An employee at the Public Advocate’s Small Business Hotline told me that inspectors find violations during practically every restaurant health inspection. Business owners describe inspectors staying until they found some vague infringement that carried a fine.
De Blasio campaigned to help these people and their customers. On his website he cited the Partnership for NYC study which found a growth in high- and low- wage jobs, but a decline in numbers of middle-wage jobs and middle-class households.
One explanation for this trend is there are additional costs of regulations beyond the fines. What cannot be seen is the amount of time, effort, and money spent by small business owners to comply with regulations that have limited value. Taking this into account, many regulations are worse than useless—they are wealth destroyers. When compliance costs grow too high, businesses do not hire the additional cashier or cook who might have been given a job under other circumstances. Businesses’ growth slows, since it is difficult to innovate while worrying about another city fine.
Unless New York City wants to go the way of Detroit, or Pittsburgh in the 1980s, it must diversify. Currently, the city is too reliant on the financial sector, where New Yorkers earn 22 percent of private sector wages. Contrary to what advocates of central planning, such as Michael Bloomberg, like to believe, labor-intensive industries cannot be created by city planners. What mayors can do is allow individuals to pursue, within reasonable bounds, their ideas when they see unfilled demand for services.
Bill de Blasio has a lot of big plans for the city, and those require funds. Not to worry, revenue “lost” by eliminating many of these pointless penalties and fines would be quickly recouped by City Hall. Business owners who once had to keep reserves of funds at-the-ready for whenever city agency inspectors came knocking are now free to use that cash. They may do so through hiring an extra hand, paying employees a little more, making improvements to better serve customers, or even funding friends and family when they start businesses of their own.
This should not be a partisan issue. Democrats, Republicans, Libertarians, Independents—they are all publicly in favor of fostering the creative entrepreneurial drive that makes our cities great. None openly support protecting large, established firms at the expense of neighborhood small businesses, especially not in their campaign speeches.
Mr. Lhota was on the right track with his call to roll back unnecessary economic regulations that obstruct growth. Who is to say Mr. de Blasio cannot take this idea, which he also followed during his tenure as Public Advocate, and use it to serve his own ends? He can create growth that not only helps middle- and lower-class families, but also generates more tax revenue—without raising rates—to fund his progressive ideas such as universal pre-kindergarten and expanded after-school programs.
Bill de Blasio has his work cut out for him. New York cannot afford another Mayor Dinkins, during whose tenure taxes were raised and services were cut. With the right choices, mayor-elect de Blasio can allow the city’s economy to flourish while uniting residents behind a commitment to growth, the type only entrepreneurship can provide.
Jared Meyer is a Research Associate at the Manhattan Institute for Policy Research