Kansas is still lagging behind other states economically, ranking 44th in job growth since 1998. But Kansas can turn the tide by removing barriers for business – namely, addressing costly regulations. Regulatory sandboxes is a tool to do this in a way that’s seen success worldwide.
With 70,969 restrictions containing 3.2 million words, the 2019 Kansas Administrative Regulations would take the average person 180 hours to read. This is on top of over 1 million federal regulations and various other local regulations such as zoning laws. Every regulation equals a cost of compliance for businesses. Small businesses spend on average $83,000 complying with state and federal regulations.
What are regulatory sandboxes?
A regulatory sandbox is a method by which entrepreneurs can operate their businesses well within the oversight of the government but without being burdened by regulations that may not even apply to them. While sandboxes differ from state, in Utah where sandboxes have thrived, it takes the form of an office that businesses apply to in order to work with a temporary waiver of certain rules and regulations. From there, government can still oversee how the business operates, and may in turn review their regulatory code if a regulation isn’t being effective.
The fewer operating costs from regulation, the more businesses will be able to towards new products, employees, or expanding in their area to the betterment of the local economy.
Similarly, sandboxes are a way to discover if regulations created previously are impeding the growth of new business or technology. In the early 2010s, Google built a gigabit-capable fiber network in the Kansas City, Kansas area more than capable of offering traditional phone services, yet chose not to because of outdated state and federal telephone regulations that made competition with traditional regional providers difficult.
Ordinary workers encounter regulations daily that make joining an industry more difficult. Licensing requirements on education, English proficiency, or amount of time as a resident could disqualify well-experienced, but economically disadvantaged, workers from competing with others. A regulatory sandbox could resolve this problem in two ways. For one, aspiring entrepreneurs could participate directly in the sandbox and avoid the stifling regulations all together. The sandbox could also be a signal to regulators and lawmakers that Kansas could operate without a certain regulation which can then be formally taken out of the books.
Why regulatory sandboxes?
Participants in regulatory sandboxes have seen verified economic success. Participants in the United Kingdom’s fintech sandbox got to market 40% faster than non-participants, with 80% of the sandbox’s participants staying in business. Those firms in the sandbox acquired 15% more private capital after joining than firms who did not, with the probability of raising capital increasing by 50%. On average, countries which introduced regulatory sandboxes saw their total venture capital investment amounts increased by 37.7%, with the average investment in size growing by 86.4%.
Because of their business- and user-friendly policies, sandboxes also attract businesses. For instance, in 2019, Wyoming began a fintech sandbox to promote industries such as digital banking and consumer credit. Two years later, and Wyoming has become a central player in America’s digital asset market, with the first cryptocurrency bank nationwide charter filed there in September 2020.
Occupations with state-specific licensing exam procedures saw 36% less interstate migration when compared to occupations with no state-specific requirements. Creating a sandbox that would, for instance, waive certain licensing requirements could allow workers to start their dream businesses without having to spend thousands of dollars and hours on a traditional license.
While a Right to Start Bill such as Missouri’s has helpful provisions such as banning permit fees and loan transparency that help entrepreneurs, much of the legislation is moving welfare from large corporations to new businesses. This is still a policy of picking winners and losers, which is less effective than policies that help all businesses equally. Whereas in a regulatory sandbox, businesses that participate all have the same barriers lifted.
Sandboxes have been a tried and tested method to promote economic growth – the type of which Kansas needs to stay competitive with other states.