Open Data Will Solve the Regulatory Riddle

Governments are the original big data entities. Our governments have long gathered data and compiled statistics on individuals and populations. The value proposition of a government’s use of data is the ability to transform information into an outcome that benefits the public good. Making good public policy stems from the ability to collect and analyze data and information, then execute changes based on those observations. Much of the promise for future generations will emerge from the trend of open data, which has taken place across the globe. 

The most exciting transformations on this front in the U.S. are happening on the state and local level. The Sunlight Foundation’s Open Data Policy initiative has logged the efforts of 36 government bodies on the state, county, and city level that have passed open data legislation. A few states and cities have been the leaders in data-driven initiatives and program administration. Maryland set the bar for states with its StateStat program launched in 2007 by Governor Martin O’Malley and its open data program. New York City has refined and enhanced a comprehensive city-management program built on data and analytics for key performance indicators across the city. Above all, open data is leading the way for more effective and efficient government. 

Cities can use open data to improve performance on local regulation. Our recent report—Enterprising Cities: Regulatory Climate Index 2014—measures the regulatory environments for small businesses across 10 U.S. cities in 5 areas of doing business. Our project documents the advances and improvements on the local level that these cities have taken. City governments in Chicago, New York City, and Boston have made proactive changes to make data more available. These changes have led to improvements in the issuance of permits and licenses for entrepreneurs and small businesses. 

Our research just scratches the surface to the true potential of open data in transforming public administration. State and municipal governments now have the technology and data to improve the ability of businesses to receive licenses, accelerate the zoning and permitting process for construction firms, and expedite city inspections for restaurants and buildings. These transformations can reduce or eliminate unnecessary waiting time and cut administrative fees. The tools are available. It's just a matter of putting them to work to improve the regulatory environment on the state and local level.

More Research About Cities and Economic Growth

The influential economist Alfred Marshall described urban economies and entrepreneurship as working in unison through parallel movements between localization and growth of the capitalist “undertakers”, or entrepreneurs.  Community is a form of currency in the global marketplace and cities matter more than ever. The most recent report from the Kauffman Foundation—authored by Yasuyuki Motoyama, Ph.D. and Jordan Bell-Masterson—measures the rate of business creation in 356 metropolitan areas across the United States. Using three sets of data for metro areas including the startup rate for all industries, high-tech sectors, and high-growth firms, the report assesses the regional factors are associated or unassociated with entrepreneurship. Specifically, the authors seek to understand what drives entrepreneurship at the regional level in high-growth sectors. 

The authors find that population size and the rate of population growth within a metro area are the two most important factors in determining start-up rates. Simply put, cities have a more diverse set of sectors and bringing in a greater number of businesses and startup opportunities. Of course, this is firmly supported in the literature on urban economies through studies on agglomeration in cities (i.e., firms benefit when locating near one another). For example, an important study comparing New York City and Pittsburgh, Benjamin Chinitz (1961) found the measure of inputs, such as independent suppliers and capital, have linked to a stronger “suppler schedule of entrepreneurship.” In short, New York City was a better place for starting and operating a business due to its size, diversity, and network of suppliers.

The most interesting finding from the report, and contrary to multiple previous studies, the authors find few significant factors for the public sector to influence entrepreneurship. The presence of government- and university-funded research and patents has no correlation to startup rates, even within high-tech sectors. The one public sector factor that is associated with higher startup rates is education, namely high school and college completion. However, the authors note that their previous findings have shown 52.6 percent of entrepreneurs having less higher education than a college degree, and thus an exclusive focus on college education and completion suggests a linear relationship between education and entrepreneurship is not likely to be true.

The authors conclude by noting the presence of high-tech sectors leads to higher rates of high-tech startups, but not for all kinds of new firm. While the authors’ research shows that higher start-up rates for high-tech sectors does not necessarily induce greater overall rates of entrepreneurship, their conclusion comes with the recommendation that policymakers shouldn’t promote high-tech companies. This is an odd recommendation, especially when comparing the results of this research to the Milken Institute's annual Best Performing Cities report. The most recent iteration finds that cities known for their technology hubs take more than half of the top-25 best performing cities. In addition, technology growth propelled a number of other metros to improve their rankings compared to the previous year. Talk to the mayor of a major U.S. city and ask what they want: it’s high-growth companies and job creation.

Larger cities are able to support a more diverse set of start-ups across all sectors. However, drawing upon the authors’ conclusions about high-tech start-ups, further study should examine what factors lead to greater start-ups in different sectors and industries. These findings go against research that shows government- and university-funded research and patents are correlated with greater innovation more generally in industries such as pharmaceuticals.

Start-up companies and small businesses look to cities to start their businesses because access to the market is more immediate and demand is greater. Cities are best suited in attracting the diverse skills, abilities, materials, and processes that are required for the birth and growth of entrepreneurial small firms. Growth, new business formation, and free enterprise will do more for a city’s economy than any economic development policy can induce on its own.