Cut the Red Tape for Startups

Entrepreneurs have put up for many years with the headaches of government hurdles in starting and running a business. Scott Shane, professor of entrepreneurial studies at Case Western Reserve University, says they’re getting worse and moreover, acting as a brake on growth. Citing a World Bank international survey, Shane writes, “Simply put, countries that regulate business formation more heavily have fewer startups.”

He elaborates,

High levels of regulation also deter entrepreneurial ambitions. Analysis of data from the research program Global Entrepreneurship Monitor shows that a country's score on the World Bank's 2007 red tape index is negatively related to the share of business owners who expect to employ at least 20 people in five years. From these data, the 2007 GEM report concludes that "all other things being equal, the more onerous a country's new business regulations, and the more local experts perceive these regulations to be onerous, the lower the level of ambition among a country's entrepreneurs.

Business Week