Over regulation of businesses from African-style hairbraiding to taxi service in some of America's largest cities may hamper bootstrapping that could revitalize poor urban neighborhoods.

That regulation can effectively bar entry into entrepreneurship opportunities that would ordinarily require little skill or education, says a 2001 study by the Reason Foundation, a free market policy group.

An overview suggests:

1. Regulations rarely address performance and quality issues. In almost no case did local ordinances address performance, quality, safety, or public health in a direct way. While ordinances were enacted with the stated purpose of protecting public health and welfare, the specific mandates and requirements had little relationship to performance. Requiring a certain number of hours of instruction in hair care, for example, does not guarantee the quality of the service provided. Moreover, inspectors could cite business owners for infractions of ordinances even though the infractions may have little impact on the quality of the service provided.

2. Regulations tend to focus on compliance with rules rather than performance. In most cases, whether regulation was at the state or local level, regulations focused on achieving set rules and benchmarks, not performance. Often, a business could easily provide a high quality product to a satisfied customer but be thwarted by the maze of local regulations. At the state level, this was clearly evident in laws regulating nail salons and hairbraiding where the state mandated detailed, largely irrelevant, criteria in order to qualify for a license. On the city level, rules regulating street vending and home-occupations were embedded in local zoning codes without reference to positive impacts from the business.

3. Regulatory approaches are diverse. Dallas, with the exception of taxicabs, appeared to have the least onerous regulatory environment, with little city-level occupational licensure. Most regulations were focused on planning and zoning permitting. The City of Atlanta, on the other hand, was involved in detailed regulation of dozens of occupations. Street vendors, while legal, face a labyrinth of micromanagement from the city, which allocates space on a first-come, first-serve basis.

4. Regulations can significantly complicate business ownership. New business owners often had to become experts in subtle legalities regulating their specific businesses.

5. Regulations favor existing businesses. The very nature of regulation favors existing businesses since, in almost all cases, licensing created an entitlement to legally operating the business. Once a taxicab company received a medallion or Certificate of Convenience and Necessity, the likelihood the license would be revoked was small. Meanwhile, licensing and other requirements created significant obstacles to new entrepreneurs less familiar with the regulatory system.

In addition to Dallas and Atlanta, the study addressed regulations in other large American cities with thriving economies including Boston and Los Angeles.

The study recommends:

1.Cities should focus regulatory policy on performance rather than rules. (See the above explanation)

2. Cities should work to reduce the complexity of the regulatory and business start-up process. Many are moving in this direction through one-stop-shops for permitting and licensing. But cities should also consider eliminating entire sections of regulatory codes with little bearing on performance. Following the precedent of Indianapolis's regulatory review commission, cities should consider a systemic overhaul of local regulations. City councils could accomplish this by passing an ordinance that effectively repeals all regulations pertaining to occupational licensing and business regulation by a certain date unless council, on advice from its regulatory review commission, reauthorizes the provision.

3. Cities should avoid extending existing regulatory rules to new occupations and businesses. The emergence of limousine and jitney services in Boston and elsewhere has increased choices and improved mobility for hundreds of residents and visitors. This growth would likely not have happened had the regulatory approach to taxis been extended to limousines.

4. City and state governments should shift the burden of proof onto regulators to demonstrate the effectiveness and usefulness of rules and licensing requirements. Cities increasingly adopt rules that virtually eliminate part-time drivers and niche companies in the taxi industry. Proponents of these rules should demonstrate that the proposals will, in fact, lead to a desired policy goal while fully accounting for costs and unintended side effects. Similarly, city governments should adopt the position that regulations should be transparent: the intended outcome should be directly tied to the regulation proposed.

5. City and state governments should continue their efforts to streamline business permitting. The increasing accessibility of the Worldwide Web and Internet can significantly reduce the time and labor costs involved with obtaining permits and fees. Businesses, in principle, could apply for permits on-line. City staff could be assigned as case workers to each application received in a queue. Case workers would be responsible for managing the application with the goal of permitting the business as quickly as possible. Similarly, licensing tests could be administered on-line, providing 24 hour, seven-days per week access by prospective applicants.

"Giving a Leg Up to Bootstrap Entrepreneurship: Expanding Economic Opportunity in America's Urban Centers" can be read in its entirety here.