Want to end poverty in California? Embrace entrepreneurship.
Sacramento politicians have heralded the state’s record-low 4.0 percent unemployment figures. While this is good news, anyone living in Southern California will tell you that things aren’t as rosy as they appear to be.
Take what’s going on in Imperial County, for example. Unemployment rates in the El Centro region, which borders both Mexico and Arizona, were 22.1 percent in August, which the California Center for Jobs and the Economy terms, “Great Depression-era levels of unemployment.”
Meanwhile, California once again had the nation’s highest poverty levels in the latest release of the U.S. Census supplemental poverty measure. It found that 18.2 percent – or almost one in every five people – were living in poverty.
We’ve heard a lot of talk this year from state elected officials about reducing poverty. But Gov. Newsom and his allies promote the status-quo policies – such as increasing taxpayer spending and creating or expanding government programs – that haven’t proven successful in helping people in need.
If they are serious about wanting to help the poor, Newsom and lawmakers should look toward entrepreneurship as the key to ending poverty in California. As a new Pacific Research Institute study finds, empowering the poor to start and grow a business is perhaps the most important thing we can do to help them move up the economic ladder.
Entrepreneurship is also the key to helping immigrants who came to California seeking a better life for their families realize the American dream of opportunity and prosperity.
Unfortunately, government has been making life harder for low-income entrepreneurs. Federal and state policymakers have imposed significant barriers to opportunity, a troubling mix of high taxes and bureaucratic red tape that make it very difficult for those at the lower end of the economy to succeed.
Sacramento erected one of the stiffest barriers this year with the signing of Assembly Bill 5, imposing strict limits on who is an independent contractor and who is an employee. Passed in the name of “protecting workers,” this misguided law will make it much harder for poor and immigrant entrepreneurs to start their own businesses, as many start their careers as independent contractors.
So, what should Sacramento do to lower startup costs and increase capital for low-income and immigrant entrepreneurs? For starters, they should repeal anti-work, anti-entrepreneur mandates like AB 5, and stop new job-killing, cost-raising mandates on startups and the gig economy.
Next, they should reform out-of-date occupational licensing laws that impose significant time constraints and burdensome costs on budding entrepreneurs – without any real public benefit. As recent figures from the Institute for Justice illustrate, roughly 2.5 million Californians need an occupational license to work, while occupational licensing barriers have cost the state nearly 196,000 jobs.
Policymakers can also stop adding to the costs of growing a business through anti-worker mandates like a $15 minimum wage.
As UC Riverside research showed earlier this year, 30,000 fewer jobs than expected will be created in the restaurant industry alone between 2017 and 2022 – just the type of business a low-income entrepreneur might open – thanks to Sacramento’s minimum wage push.
At the federal level, policymakers should embrace free-market reforms to the tax code to lower taxes on small businesses and allow more flexibility to save in tax-free retirement and health-care accounts. They should also right-size regulations on microlenders and community banks. Collectively, these policies would give low-income and immigrant entrepreneurs more access to the startup cash they need.
Ending poverty in California requires a different way of thinking than higher taxes and bigger government adopted in the name of “helping” the poor. By embracing the free market and empowering low-income and immigrant entrepreneurs, we will see more startups launch, more jobs created and people hired, and more Californians growing their way into the middle class.
Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute. Download a copy of his study “Entrepreneurship as a Pathway to the American Dream” at www.pacificresearch.org.