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.