Monday, November 1, 2010

Help Small Business?

You've seen the political ads. “I will help small business” is scattered over the airwaves and the mail you receive. Most every candidate wants voters to believe he or she will be the salvation of small business. However that raises two questions for those candidates:

1. How will you help small business?, and
2. Why only small business?

Let's deal with the second question first. Why should we only worry about small business? The answer is that we should worry about all business in this country. They are all interconnected. Take for example the small businesses near my home. There are restaurants. There are contractors who do plumbing, electrical work, painting, carpentry etc. There are clothing stores and other small retail establishments. They employ lots of people though in the current economic climate many have had to reduce employment.

What allows them to employ those people? In many cases it is big business, especially Intel which has several major facilities in the area. Intel directly hires many contractors. Intel employees eat at local restaurants and shop at the small retail establishments. Then the net spreads outward. The electrician who wires an Intel facility also eats at the restaurant and his wife shops at the clothing store. The restaurant and clothing store employees eat and shop locally providing yet more jobs, and on and on and on.

Nor is Intel the only such big business in the area. Several other major businesses provide employment not only for their own employees but for contractors, retailers, eateries etc. In some cases they even buy components from small businesses.

The small and big businesses are all interconnected. If big business were to vanish, most of the small businesses would soon disappear also.

We might also look at employees. Why is it better to work at a small business than at a big business? In most cases it is not. Some small businesses are great places to work, but so are some big businesses. The same can be said of bad places to work, some are small, some are huge.

We need both large and small business to provide employment for the people.

How about how the politicians plan to help? It's easy to say “I will help small business” but rather more difficult to actually do it. Most political ads are thin on how the candidate intends to help. The most I've heard is a promise to make loans available. In some cases that would help but banks already have money available. They are not lending because of uncertainty in the political climate.

That uncertainty harms business in two ways. First, entrepreneurs are reluctant to start businesses if they fear that changes in regulation will affect those businesses. Second, even if someone wants to start a business, banks are reluctant to loan money for the same reason.

For example, suppose Bill wants to start a plumbing business. He knows how much it will cost to get a business license, buy equipment, and hire plumbers. However his jurisdiction is considering changes. If those changes take effect he will need different equipment. They may increase the cost of a business license as well as permits for any work he does. They may require expensive benefits for his employees. Will Bill start his business under that uncertainty? Probably not. Even if he wants to go ahead, will the bank loan him the money he needs to buy equipment that may soon become obsolete? Again probably not.

The best thing our politicians could do for small business, indeed any business, is to reduce unnecessary regulation and to make the business climate predictable. And they should not concentrate only on small business. Instead they should treat business as the interconnected entity it is.

1 comment:

Bobkatt said...

I think you are right on about this subject. Small businesses are great but big business is not the enemy. They employ thousands and usually offer great benefits.
I'm not a big fan of Walmart but when people fret that they replace small businesses and offer low wages and limited benefits but often the small businesses paid the same low wages and almost no benefits.