The St. Louis Business Journal recently published details of a report that placed St. Louis in the top ten “untapped cities” for startups. This is encouraging, but another study out of Arizona on barriers to business creation was less positive, showing that St. Louis has a lot of work to do in order to ease the way for entrepreneurs.
First, it’s worth recalling that in 2018 the National Bureau of Economic Research (NBER) demonstrated how tax rates affect innovation. Looking at state-level taxation dating back to the early twentieth century, the NBER concluded, “A one percentage point higher tax rate at the individual level decreases the likelihood of having a patent in the next 3 years by 0.63 percentage points.” Specifically, they found that, “higher personal and corporate income taxes negatively affect the quantity, quality, and location of inventive activity at the macro and micro levels.” This should not surprise anyone; resources that might be put toward innovation can’t be used for that purpose if they are spent paying taxes.
The new study from Arizona State University, titled “Doing Business: North America“ looked at 115 cities in the United States, Canada, and Mexico and rated them in six different categories. Those were “starting a business,” “employing workers,” “getting electricity,” “registering property,” “paying taxes,” and “resolving insolvency.” (All U.S. cities tied for first place regarding insolvency.)
While St. Louis ranked 31st overall out of the 115 cities in Canada, the United States, and Mexico (no other Missouri cities were included in the study; Chicago scored 45th overall), the areas where it scored less impressively—starting a business and employing workers—feature significantly in attracting entrepreneurs and innovation.
St. Louis scored 60th on “starting a business” (46th among U.S. cities). This ranking resulted from a “study of laws, regulations, and publicly available information on business entry,” along with consideration of the time and cost of complying with applicable regulations.
Regarding “employing workers,” St. Louis ranked 47th both for the whole sample and among the 66 U.S. cities examined. This ranking was more involved and is described on page 177 of the report, but it reflects the cost of wages and wage regulations such as probationary periods, overtime requirements, and sick leave.
Policymakers can debate the value of local and state mandates and regulations associated with starting a maintaining a business, but all should acknowledge that each one imposes a cost on the employer. Forty-six other U.S. cities have formulated less costly ways to meet their public policy objectives when it comes to employing workers. And St. Louis was outranked by cities in in all three countries examined when it came to ease of starting a business!
All this suggests that when working toward the important goal of taking advantage of St. Louis’ “innovation districts” in the agri-tech, biomedical and technology fields, city government could do a lot more to help entrepreneurs take advantage of what the city may already offer.