One of the keys to improving the standard of living for citizens is to make sure it isn’t too difficult for them to form new businesses or find good jobs. Unfortunately, some governments make that process harder than it should be. San Francisco serves as a prime example. An important new report just out from Arizona State University proves that.

“Doing Business North America,” is a wide-ranging comparison of six types of business regulations in Canada, Mexico and the United States. The almost 200-page report was released by the Center for the Study of Economic Liberty, a joint endeavor of the W. P. Carey School of Business and the School of Civic and Economic Thought and Leadership. The effort was spearheaded by my old colleague Stephen Slivinski and a team of other scholars and students at the Center.

The report is a major undertaking that examines how 115 North American cities rank overall, as measured by six categories: starting a business, employing workers, getting electricity, registering property, paying taxes, and resolving insolvency. Among all U.S. cities, San Francisco ranks dead last with a score of 59.04 out of a 100. Of the 115 cities evaluated in Canada, Mexico, and the U.S., San Fran ranked 77th. By comparison, Oklahoma City ranked first in overall ease of doing business with a score of 85.22.

Shockingly, things appear ready to get a lot worse for the citizens of San Francisco. In my latest column for the American Institute for Economic Research, I discuss the city’s newly proposed Office of Emerging Technology.  This new bureaucracy, which would be within the city’s public works department, would impose a new permitting system on anyone looking to launch new technologies that might somehow use public rights-of-way, such as sidewalks and roads. Innovators who fail to pursue and receive the appropriate permission slips will face civil and criminal penalties.

As I note in my column, this new permitting office “would discourage entrepreneurial efforts, consumer choice, and new employment opportunities,” because:

Whenever bureaucrats are in charge of an innovation-by-permission-slip regime, a line will form to get permits on the best terms possible. Whoever is the most clever and well-connected will get access first. Scrappy start-ups won’t have the resources to play the lobbying game or navigate the costly and complicated permitting system. Innovation will suffer.

Citizens respond to incentives and when laws and regulations raise the cost of doing business it stifles the entrepreneurial spirit. The problem with our ever-expanding “permission society,” as Goldwater Institute attorney Timothy Sandefur describes it in his latest book, is that “when told that they will have to undergo expensive and time-consuming permit processes before being allowed to pursue a new idea, many simply give up without trying.”

Or, they relocate. As I note in my column,

Innovation arbitrage is a phenomenon that the city should be worried about. It refers to the movement of ideas, innovations, or operations to jurisdictions that provide a legal and regulatory environment more hospitable to entrepreneurial activity. Innovation arbitrage is becoming easier in the Internet Age than it was in the past. Many cities and states are experiencing an outflow of talent because of onerous policy regimes that prioritize red tape and vague notions of the public interest over worker opportunities and consumer choice. If San Fran’s new anti-innovation office is established, it wouldn’t be surprising to see many firms and individuals relocate to areas with greater freedom to experiment.

It may already be happening for other reasons. For example, Stripe, one of the world’s most valuable startups, is apparently considering moving out of the city. According to the San Francisco Chronicle, “The payments processing company, valued at $35 billion, is considering moving about 10 miles away to South San Francisco, said two people familiar with the company’s potential plans.” Apparently, Stripe is considering the move due largely to the lack of available office space and the seeming unwillingness of the City to address chronic office and housing shortages.

So, if you add together burdensome permitting processes, high costs of housing and office space, and high taxes (with new ones being proposed all the time), you get a recipe for economic stagnation and a lowered standard of living for your citizenry. What makes this particularly sad in San Francisco’s case is that the city is, at once, brimming with entrepreneurial potential but also chock full of serious social problems. Economic opportunity can be part of the solution to some of those problems, but opportunities of entrepreneurial dynamism won’t happen so long as the city makes it so costly to form new businesses and pursue new jobs. Hopefully, San Francisco and other cities learn this lesson and relax burdens to innovation and new business formation.

[The following essay is a guest post from Dan Rothschild, director of state projects and a senior fellow with the R Street Institute.]

As anyone who’s lived in a major coastal American city knows, apartment renting is about as far from an unregulated free market as you can get. Legal and regulatory stipulations govern rents and rent increases, what can and cannot be included in a lease, even what constitutes a bedroom. And while the costs and benefits of most housing policies can be debated and deliberated, it’s generally well known that housing rentals are subject to extensive regulation.

But some San Francisco tenants have recently learned that, in addition to their civil responsibilities under the law, their failure to live up to some parts of the city’s housing code may trigger harsh criminal penalties as well. To wit: tenants who have been subletting out part or all of their apartments on a short-term basis, usually through web sites like Airbnb, are finding themselves being given 72 hours to vacate their (often rent-controlled) homes.

San Francisco’s housing stock is one of the most highly regulated in the country. The city uses a number of tools to preserve affordable housing and control rents, while at the same time largely prohibiting higher buildings that would bring more units online, increasing supply and lowering prices. California’s Ellis Act provides virtually the only legal and effective means of getting tenants (especially those benefiting from rent control) out of their units — but it has the perverse incentive of causing landlords to demolish otherwise useable housing stock.

Again, the efficiency and equity ramifications of these policies can be discussed; the fact that demand curves slope downward, however, is really not up for debate.

Under San Francisco’s municipal code it may be a crime punishable by jail time to rent an apartment on a short-term basis. More importantly, it gives landlords the excuse they need to evict tenants they otherwise can’t under the city’s and state’s rigorous tenant protection laws. After all, they’re criminals!

Here’s the relevant section of the code:

Any owner who rents an apartment unit for tourist or transient use as defined in this Chapter shall be guilty of a misdemeanor. Any person convicted of a misdemeanor hereunder shall be punishable by a fine of not more than $1,000 or by imprisonment in the County Jail for a period of not more than six months, or by both. Each apartment unit rented for tourist or transient use shall constitute a separate offense.

Here lies the rub. There are certainly legitimate reasons to prohibit the short-term rental of a unit in an apartment or condo building — some people want to know who their neighbors are, and a rotating cast of people coming and going could potentially be a nuisance.

But that’s a matter for contracts and condo by-laws to sort out. If people value living in units that they can list on Airbnb or sublet to tourists when they’re on vacation, that’s a feature like a gas stove or walk-in closet that can come part-and-parcel of the rental through contractual stipulation. Similarly, if people want to live in a building where overnight guests are verboten, that’s something landlords or condo boards can adjudicate. The Coase Theorem can be a powerful tool, if the law will allow it.

The fact that, so far as I can tell, there’s no prohibition on having friends or family stay a night — or even a week — under San Francisco code, it seems that the underlying issue isn’t a legitimate concern about other tenants’ rights but an aversion to commerce. From the perspective of my neighbor, there’s no difference between letting my friend from college crash in my spare bedroom for a week or allowing someone I’ve never laid eyes on before do the same in exchange for cash.

The peer production economy is still in its infancy, and there’s a lot that needs to be worked out. Laws like those in San Francisco’s that circumvent the discovery process of markets prevent landlords, tenants, condos, homeowners, and regulators from leaning from experience and experimentation — and lock in a mediocre system that threatens to put people in jail for renting out a room.

San Francisco’s Entertainment Commission will soon be considering a jaw-dropping attack on privacy and free assembly. Here are some of the rules the Commission may adopt for any gathering of people expected to reach 100 or more:

3. All occupants of the premises shall be ID Scanned (including patrons, promoters, and performers, etc.). ID scanning data shall be maintained on a data storage system for no less than 15 days and shall be made available to local law enforcement upon request.
4. High visibility cameras shall be located at each entrance and exit point of the premises. Said cameras shall maintain a recorded data base for no less than fifteen (15 days) and made available to local law enforcement upon request.

Would you recognize a police state if you lived in one? How about a police city? The First Amendment right to peaceably assemble takes a big step back when your identity data and appearance are captured for law enforcement to use at whim simply because you showed up. (ht: PrivacyActivism.org)

Regarding San Francisco’s open data portal, DataSF, @cordblomquist astutely notes that open data is becoming a political virtue.

Via engadget, here’s a fun video showing how easy it is to pick up information from passport cards and “enhanced driver’s licenses.” (Enhancement is in the eye of the beholder, of course.)

These cards use RFID to broadcast information when properly interrogated, and this information can be used (at a minimum) to track people’s movements. Hacker Chris Paget demonstrates this and discusses the weakness of using RFID on people.

San Francisco ex-pats like myself will take special delight from the video as Chris drives past Red’s Java House at minute 1:56. Burger me – NOW!

And he would scrap WHTI. I’ll have one of those too.