A city can work hard to attract investment, support entrepreneurs and revitalize its commercial districts. But for a business trying to open or expand, the local economic environment is often experienced much more practically: How long will a permit take? Which licenses are needed? Is the site correctly zoned? Which agency needs to approve what?
Regulation is not the problem. Rules protect safety, ensure fairness and safeguard environmental quality. But research across U.S. cities shows how unnecessarily complex local licensing, permitting and zoning processes, particularly where businesses must navigate multiple agencies, can create friction and have an outsized effect on local economic development. When local processes are poorly coordinated, difficult to navigate, or unpredictable, they can make it harder for firms to start, invest and grow – undermining the economic development objectives that cities and regions are trying to achieve.
From projects to ecosystems
For much of the past century, economic development has focused on visible wins: a factory opened, a headquarters landed, a site prepared, an investment announced. Those achievements matter, and they remain central to the field. But over time, the policy focus has broadened to building ecosystems shaped by skills, finance, infrastructure, and the everyday systems through which businesses interact with government.
Within that ecosystem, the way rules work in practice plays a critical role. Differences in permitting timelines, licensing processes, and land-use decisions are not just administrative details. They shape how quickly firms can invest, how much uncertainty they face, and whether projects proceed at all. In practice, these decisions are often made at the state and local levels.
Why local systems matter
Our OECD report, Boosting Business in Regions, shows that these subnational differences are not marginal. They have measurable economic consequences.
In many regions covered by the analysis, obtaining an operating license takes more than two months. Regions with faster licensing processes exhibit around 25% higher rates of business formation. Even where national or federal laws are identical, and even in countries with otherwise strong business environments, business experience varies widely depending on how efficiently subnational authorities process applications, co-ordinate approvals, and communicate requirements.
This is not just an issue for other countries. OECD indicators show that the United States’ licensing and permitting regime is more burdensome than the OECD average, pointing to considerable scope for simplification. That matters because these are the points where projects either move forward or stall – where timelines, predictability, and co-ordination can make the difference between a project proceeding, being delayed, or ultimately being abandoned.
The Cost of Complexity: Licensing and Permitting in the United States
Source: OECD Product Market Regulation (PMR) indicators: How does the United States compare?
A key source of friction is fragmentation. Responsibilities for permits, licensing and land use are often spread across several agencies and levels of government. Businesses may have to provide similar information more than once, navigate unclear timelines, or deal with inconsistent guidance. Overlapping governance structures can slow down decisions, create uncertainty, and discourage investment.
These burdens do not fall evenly. Larger firms, especially in major metropolitan areas, often have the staff, legal support, and experience to navigate complex systems. Smaller firms do not. In non-metropolitan and rural regions in particular, entrepreneurs often have less capacity to navigate administrative complexity, making delays and unclear procedures a more serious obstacle to starting or expanding a business. In this way, friction in local systems can quietly widen regional gaps in entrepreneurship and growth.
Reducing friction without lowering standards
This is not an argument for deregulation. Rules are essential. They protect safety, ensure fairness, and safeguard environmental quality. The question is whether they work efficiently in practice.
The good news is that this friction can be reduced without lowering standards. Several practical reforms already show how.
Chicago offers one example of how to streamline licensing systems. The City of Chicago reviewed more than 100 business license types and developed a simpler tiered structure, concentrating the most stringent requirements on a narrower set of businesses.
Arizona offers another example. By combining regulatory improvements with changes to the application process, the state cut processing times by 60% and reduced planning reviews to just four days.
Elsewhere, Lithuania streamlined construction permitting by reducing steps, allowing some procedures to run in parallel and cutting decision times. In Mexico, the SARE reform simplified registration and licensing for low-risk firms, sharply reducing both the number of procedures and the time required to register a business.
Governments can also make compliance easier through one-stop shops and clearer information. Canada’s BizPaL helps firms identify permitting requirements across levels of government in one place. Portugal’s Empresa na Hora dramatically reduced the time needed to start a company and helped create thousands of firms and jobs.
Digitalisation offers further gains. Denmark’s once-only approach allows firms to submit information once and reuse it across the public administration, reducing repetitive reporting and saving time and money.
And regulatory systems need to work for small businesses, not just for large firms with dedicated compliance teams. In Veneto, Italy, local authorities developed training and manuals to help small agricultural producers understand and comply with food safety and hygiene requirements.
Learning across regions
One of the defining strengths of economic development over the past century has been its capacity to learn and adapt. Local experiments have not remained isolated. Through networks, institutions, and shared practice, successful approaches have spread across regions and countries.
That process remains just as important today. Across countries, states, regions, and cities are experimenting with new ways to simplify procedures, improve co-ordination, and make compliance easier for businesses. But these innovations often remain scattered, with too few mechanisms to share what works and adapt it elsewhere.
A better local business environment rarely comes from one big reform. More often, it is built through steady improvements, comparison with peers, and borrowing and refining ideas from elsewhere. A county trying to simplify licensing, a state trying to coordinate approvals, or a region trying to make compliance easier for small businesses can all learn from reforms tested elsewhere, even when legal systems differ.
Turning rules into results
Economic development will always involve competing for investment. But places also need systems that allow more firms to start, grow, and survive. That is why local rules and processes belong inside any serious conversation about building stronger business ecosystems.
Competitiveness is shaped not only by incentives, infrastructure and talent, but also by what happens in permit offices, planning departments, and business-facing administrative systems. Those details may sound mundane. In practice, they can determine whether a project moves ahead, whether a small business opens its doors, and whether entrepreneurs decide a place is worth the effort.
Getting those systems right is not a one-off reform. It is a continuing process of improvement, consultation and learning. The places that succeed will be those that turn good rules into workable systems – and learn fastest from others how to do it.
About the Author:
Lamia Kamal-Chaoui is the Director of the Organization for Economic Co-operation and Development (OECD) Centre for Entrepreneurship, SMEs, Regions and Cities.