ASU research shows how deregulation could help minority businesses

If cities tweaked their regulations to make it easier to start a business, it might lead to more minority business ownership, according to an economist who analyzed a new Arizona State University dataset.

“I wanted to see, ‘Is there something we can put our finger on when it comes to the ease of doing business, and if we relax this barrier, will we see more minority business ownership?’ ” said Alicia Plemmons, an assistant professor at Southern Illinois University Edwardsville.

Plemmons examined ASU's newly released Doing Business North America 2021 report and compared it with data on minority business ownership. She found that even a small increase in the ease of doing business, measured as a one-point increase in a city’s score, correlated with a nearly 4% increase in minority-owned businesses relative to the minority population in a city.

Plemmons, who studies occupational regulation and taxation, spoke at a webinar held Tuesday by the Center for the Study of Economic Liberty at ASU, which produced the Doing Business North America 2021 report. The report, in its third year, compares a wide range of business regulations among 134 cities in Canada, Mexico and the United States. The center is a joint endeavor of the W. P. Carey School of Business and the School of Civic and Economic Thought and Leadership.

Doing Business North America 2021 was compiled by center researchers, including undergraduates at ASU, who analyzed publicly available datasets and websites, collecting information on regulations that affect small and medium-size businesses, such as required maternity leave, how many steps it takes to get the power turned on and how high the tax rate is.

The more regulations a city has, such as mandated paid time off or multiple steps for rezoning, the lower the score and the rank.

The analysis showed a wide range of experiences in starting a business. For example, it takes an average of one day to start a business in Colorado Springs, Colorado, compared with 12 days in Phoenix.

Among the 134 cities evaluated for the 2021 edition, Colorado Springs ranked first in overall ease of doing business, with a score of 78.04 out of 100.

The full top 10 are: Colorado Springs; Durham, North Carolina; Henderson, Nevada; Sioux Falls, South Dakota; Salt Lake City; Raleigh, North Carolina; Charleston, South Carolina; Cincinnati; Tulsa, Oklahoma; and Las Vegas.

Chandler, Arizona, a new addition this year, ranked 13th, with a score of 74.53.

Phoenix, which came in 59th last year, ranks 36th this year, scoring 71.58. The other two Arizona cities ranked were Mesa, 34th, and Tucson, 45th.

The cities at the bottom of the list were all in Mexico. The lowest-ranked U.S. city is Charleston, West Virginia, at No. 95.

Plemmons found that the subcategory of “ease of starting a business” had the biggest correlation to increased minority business ownership.

“Minimum wage is loosely related to a decrease. The higher the minimum wage, we start to see slightly less minority business ownership,” she said. 

“Severance or paid maternity leave or sick days didn’t have much of an effect, and neither did getting electricity,” she said.

The results can translate directly into policy decisions for cities that want to encourage minority business ownership, she said. So decreasing startup fees or streamlining licensing and permiting might prove beneficial, whereas decreasing the corporate tax rate might not.

Plemmons’ analysis found that, when considering the proportion of minorities in the population, the four Arizona cities rank fairly high among U.S. cities in the report for minority businesses: Mesa is eighth; Chandler is ninth; Tucson, 23rd; and Phoenix, 25th.

The Doing Business in North America project was led by Stephen Slivinski, who was a senior research fellow and project director at the Center for the Study of Economic Liberty until recently leaving ASU.

The primary motivation of the research is to find business migration patterns, he said.

“So we looked at the world as it existed before COVID, and now we’re looking at how it’s coping with COVID,” he said.

“People can leave and work remotely, independent of where their workplace is. There’s been a large exodus of businesses from California to several places. Phoenix is one of those places, as well as cities in Texas, Nevada and as far away as North Carolina.”

The 2021 report includes four new cities: Chandler; Durham; Fort Worth, Texas; and St. Petersburg, Florida.

“We realized that if we were only looking at the largest cities in the U.S., we were not looking at growing cities, and that’s important if you want to capture what the migration of people and businesses look like long term,” he said.

“So we added four cities that had the highest population growth.”

The new analysis found one surprising factor, Slivinski said.

The most significant reason why some cities moved up the rankings, or dropped, was the score in the category of getting electricity. That category measures the price of electricity per kilowatt hour and reliability

“When you scale it up, you realize that even a one-cent change for a small manufacturer can have a several-thousand-dollar change in the cost of doing business,” Slivinski said.

Reliability, the number of blackouts or brownouts, is based on annual data from the U.S. Department of Energy.

“Salt Lake City bumped into the top 10 this year, and it was almost exclusively because the state of Utah saw a one-cent-per-kilowatt decline in electricity prices and saw a halving of the number of days that a business would be offline because of electricity blackouts,” he said.

“So we’re getting a glimpse of how states are dealing with infrastructure needs and challenges they had when lots more people were working at home and residential energy consumption went up.”

“Texas saw a migration of businesses during the pandemic but suffered severe problems with its electricity grid earlier this year. Next year’s report might show the effects of that.”

Top image of the Phoenix skyline by Deanna Dent/ASU News

Mary Beth Faller
marybeth.faller@asu.edu