Monday, October 11, 2010

Government's Red Tapeworm

We started in the lobbying business just about thirty years ago right after receiving a doctorate in political science. Coming right out of the academy, we don't need to tell you that our view of business was not a laudatory one-but in defending Mom and Pop beer distributors and immigrant owned food stores, we began to, let's say, evolve in our outlook. We saw first hand just how much effort it took to start up a small business and run it successfully-and especially so in NYC where it seemed that there was a conscious effort on the part of government to strangle entrepreneurism in its womb.

And so it has gone for the better party of three decades, as we have stood up for the beleaguered little guys when it comes to, not only excessive taxation and over-regulation, but the proliferation of subsidized mega retail development that would-if left unchecked-suffocate the neighborhood commerce that makes this city so interesting and unique. In the process, we have helped to stifle Giuliani inspired rezoning for mega stores, helped to keep Wal-Mart at bay on the city's outskirts, and successfully stymied some of the regulatory urges that government periodically unleashes in  NYC.

We have also gotten quite an education-and the learning process has given us a unique perspective on the importance of the entrepreneurial spirit; and the role that American exceptionalism plays in its nurturing. In NYC we see immigrants from all over the globe-coming from some of the most culturally stagnant backwaters-blossom as successful business men and women. It couldn't happen in their homelands, but it certainly can happen here-and it does quite often.

But make no mistake about it, the culture that nurtures Dominican and Mexican bodega owners and restaurateurs, and at the same time allows Arab tobacco store owners and Caribbean fruit store owners to prosper, is definitely under siege. And it is a sea of red tape at all levels of government that threatens to stifle this creative entrepreneurial impulse.

In yesterday's NY Daily News, Phillip Howard makes the case, and underscores why small business is particularly at risk: "Government is broken and the economy is gasping. The reason is the same: Americans no longer feel free to roll up their sleeves and make the choices needed to fix things. Governors come to office and find that 90% of the budget is pre-committed to entitlements and mandates enacted by politicians long dead. Teachers no longer have authority to maintain order in the classroom. Legal mandates and entitlements have accumulated, like sediment in the harbor, until it is almost impossible for Americans to get anywhere without trudging through a treacherous legal swamp. Only big businesses, not small entrepreneurs, have the size (and legal staffs) to power through the legal sludge."

The regulatory and tax environment is toxic for business growth: "Instead, the land of opportunity is more like legal quicksand. Small business owners face legal challenges at every step. Municipalities requires multiple and often nonsensical forms to do business. Labor laws expose them to legal threats by any disgruntled employee. Mandates to provide costly employment benefits impose high hurdles to hiring new employees. Well-meaning but impossibly complex laws impose requirements to prevent consumer fraud, provide disability access, prevent hiring illegal immigrants, display warnings and notices and prevent scores of other potential evils. The tax code is incomprehensible. All of this requires legal and other overhead - costing 50% more per employee for small businesses than big businesses."

We have made this same point ad nauseum in regards to NYC-and it seems that the regulatory demi-urge is most persistent here. We have fruit stand owners being charged over $1,000 in fines because water melons extended slightly over the legal five foot stoop stand limit; and we have supermarket owners tagged for $1500 fines if the light over the exit has burned out. Just recently, a state senator told us of a bakery owner in the district that was fined $1600 for failing to put flour down a as covering when he was kneading the dough for his bread.

The entire inspection regime, as Steve Malanga documented so well in the City Journal, is a stacked deck-with a kangaroo court at the end of the process. Think of your effort to get a parking ticket rescinded at a PVB tribunal and you get the picture of the nightmare that small business is put through on a regular basis-as Gotham Gazette highlights: "With parking tickets, one issue revolves around the ability to plead "not guilty." New Yorkers can fight parking tickets, but until the final decision is rendered, they will be presumed guilty of letting the meter run out, parking on the wrong side of the street on alternative side parking days or having incorrectly interpreted the often confusing signs that mark streets in many of the city's businesses district."

And one lawyer's observation about parking tickets is analogous to the daunting task that a neighborhood retailer has when faced with fighting a ticket he or she feels is unjust: The Parking Violations Bureau adjudicated 1.27 million parking summons at in-person hearings in 2009, according to Dennis Boshnack, a Queens attorney with expertise in parking violations cases and a former Parking Violations Bureau administrative law judge or hearing officer. Writing in the New York Law Journal, Boshnack maintains that most drivers give up their fight because they are representing themselves and cannot continue litigation alone and/or pay lawyer's fees that can easily cost more than the fine itself. The small amounts of money involved in individual cases make suing the Parking Violations Bureau "unaffordable or impractical."

But fines are just one aspect of the obstacles faced by small business. Think of the scores of regulatory agencies that oversee business operations in this city-and the myriad of permits necessary just to open one's door. That is why we have fought the cigarette signage regulation-city grocery stores are threatening to be turned into municipal billboards, with permits and "consumer advisories" adorning walls where advertisements for the products sold should be seen.

Which brings us to the proposed sick leave bill that has cause a bit of a stir. City small business is in a severe crisis-as many of the sponsors of the paid sick leave bill realize since they are also sponsoring the Small Business Survival Act. Stores are going bankrupt in record numbers, and the current mayor has done little to address this crisis. National health care is creating additional expensive mandates that large corporations such as McDonald have the wherewith all to get exempted from, but small retailers don't. The repeal of tax cuts on the so-called wealthy will negatively impact small businesses as well.

In this climate, adding an additional expense to smaller firms is both unfair and risky-risky in the sense that it may lead to the reduction of employment at a time when city incomes are falling and jobs are scarce. But the expense goes beyond the workers, because the law sets up a right of action that will further put small business at legal risk-and they are already laboring under expensive workman's comp laws and regulations; not to mention the slip and fall litigation brought by savvy customers.

What we have suggested is that a full cost benefit analysis be done on the legislation-with a particular emphasis on its impact on the small business sector. By all means don't take the NYC Partnership study as gospel, but our experience suggests that an independent evaluation would provide the city council with a cautionary tale.

Fighting on behalf of small neighborhood businesses over the past three decades has been a rewarding experience-as has the more recent fights on behalf of labor and living wage (see our explanation of this in the retrospective we did on the Kingsbridge Armory battle). In the case of Wal-Mart, we see that the interests of small business and labor converge-and the attempts to divide us on the sick leave issue only hurts the need for a united front against the world's largest retail corporation-whose presence is both bad for workers, and devastating to surrounding smaller retailers.

Let's also remember that the one man who stands tall, not only against paid sick leave, but living wage and the Small Business Survival Act as well, is NYC's Mayor Mike Bloomberg. It's always good to realize just who your genuine enemies are when preparing to go to battle. But the real obstacle-and this effects both small business and labor-is NYC's lousy business environment-one that stymies growth and hurts workers at the same time.

During the current economic crisis-and with a Wal-Mart invasion looming large-it is time for all of us to confront and resist the age old tactic of divide and conquer. We have enough real enemies without having to create them from within our own ranks. Above all, we need to avoid Pogo's wise observation concerning a trash filled swamp: "YEP, SON, WE HAVE MET THE ENEMY AND HE IS US."