Chicago: The city that works but not for entrepreneurs

Last week I discussed Illinois’ poor entrepreneurship rate compared to the nation as a whole. Unfortunately, the results get worse when drilling down to Chicago. As the graphic shows, Chicago has the worst entrepreneurship rate among the 15 largest metropolitan areas in the country. Wait, I take that back: we’re tied at the bottom with the post-apocalyptic wasteland known as Detroit. Chicago is tied with Detroit. Let it sink in. It doesn’t get any worse than this.

The 2012 Kauffman Foundation entrepreneurship index measures the percentage of adults ages 20 to 64 that start a new business each month and work 15 or more hours per week. It’s essentially a measure of entrepreneurs voting with their feet about where they want to pursue their dreams. And they’re voting against Chicago.

More people lived in Chicago in 1920 than today. There has been a mass exodus from the city. Talented, creative and innovative people have chosen to live elsewhere to start and grow businesses. That’s bad news. But worse is that public policy is helping to drive entrepreneurs out.

In 2011, Illinois Gov. Pat Quinn signed the Main Street Fairness Act that required out-of-state online retailers such as to collect and remit sales taxes on purchases destined for Illinois if the online retailer had arrangements with Illinois-based marketing affiliates. These are typically coupon or deal websites, whose operators earn commissions for driving shopping traffic to an online retailer.

To avoid triggering the sales tax, out-of-state online retailers simply dropped their Illinois marketing affiliates, driving thousands of Internet startup entrepreneurs, many in Chicagoland, either out of business or out of state, some never to return again.

On the day the Illinois online sales tax was signed, Brad Wilson, founder of, accurately predicted the tax would kill this sector in Illinois: “Chicago doesn’t lead on the Internet in many things, but this space is one of the things that we do, and the state should cherish that and foster that. These are modern business models. They don’t require factories or fixed investments. They require smart people. And you can find smart people anywhere. They’re legislating (this industry) out of the state.”

Brad was right. Quinn’s online sales tax stopped this emerging sector in its tracks. The small, up-and-coming Internet entrepreneurs got hammered by their own Illinois government. Overnight, the state became less competitive in e-commerce, the future of business, communications and entertainment.

In 2011, Quinn also orchestrated a 67 percent increase in the state’s personal income tax. And Chicago Mayor Rahm Emanuel is wrestling with public employees and the state legislature over the city’s $20 billion pension crisis. People correctly see this crisis as a ticking time bomb of future tax hikes, which drives entrepreneurs away.

What does Quinn propose to Chicago’s entrepreneurs in the face of these big macro problems of overtaxing and overpromising? Bold tax and pension reform? Speaking to HuffPost, Quinn said he wants to spend more state money on “ultra-high-speed” Internet throughout Illinois. This is exactly the approach that has beenproven to be unnecessary.

Today Texas is known for innovation and international trade. It wasn’t long ago that Texas was known for cattle, dust and tumbleweeds. Chicago might be known for these same things soon if city and state lawmakers don’t go bold and repeal the online sales tax, repeal the income tax hike, adopt a sensible 401(k) system for public employees and cut government red tape to start new businesses.

The “rendezvous with reality” is now. Time to go bold Messrs. Quinn and Emanuel.

Lawrence | McQuillan