For starters, the problem: Fewer new businesses means fewer new jobs
A recent front-page story in USA Today should have grabbed the attention of anyone concerned about economic growth and job creation. The headline? “Weakest startups since early ’90s.”
USA Today reported that, according to the U.S. Bureau of Labor Statistics, the
12-month period ending in March 2011 experienced the slowest new business startups over 12 months since the BLS started tracking such data in the early 1990s.
From March 2010 to March 2011, there were 505,473 business startups, down from the record 667,341 registered over the period of March 2005 to March 2006.
The USA Today story correctly noted: “Weak startup growth has dire implications for jobs because small and midsize businesses have driven employment gains in the U.S. for years.”
Indeed, as the U.S. Small Business Administration Office of Advocacy points out: “Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008.”
Even more powerful are the ADP findings noted in the USA Today report. From the end of the 2001 recession to the start of the recent recession in late 2007, businesses with fewer than 500 workers added almost 7 million jobs, while firms with 500 or more employees actually cut nearly a million U.S. jobs.
What’s the problem? Uncertainty created by and costs imposed by government.
While elected officials at all levels of government and from both sides of the political aisle speak glowingly of small businesses and how important they are to our economy, the policies implemented by many of these same elected officials are glaringly anti-small business. In fact, the anti-entrepreneurship, anti-business,
anti-jobs list of regulation and taxation — and numerous threats in each of these areas — have been considerable. Those include the intrusive new health care law (including new mandates and regulations and higher taxes), financial system overhaul, EPA moves to regulate carbon dioxide emissions and assorted anti-energy-development measures and the threats of additional tax increases pushed by President Barack Obama and linked to runaway government spending.
For good measure, monetary policy has juiced up inflation and threatens higher inflation down the road. And a lack of interest or action on advancing free trade has reduced opportunity for U.S. entrepreneurs, businesses and workers.
A May 2011 entrepreneurs and the economy outlook and trends survey released by the Small Business & Entrepreneurship Council found widespread discontent with Washington’s response to the economy and its posture toward the private sector. Fully 76 percent of small business owners aren’t satisfied with current federal economic policies.
In addition, just 33 percent of small business owners believe their companies’ financial conditions will improve over the next six months. To make matters worse, gas prices are putting a squeeze on their bottom lines. With respect to the cost of health coverage, 69 percent of small business owners don’t believe the new law will lower costs and a mere 7 percent say they were able to use the small business health care tax credit included in the massive reform measure.
If we’re serious about re-energizing economic growth, reinvigorating startups and getting job creation back on track, it’s clear what’s needed: deep, substantive and permanent tax relief; regulatory reform and a paring back on intrusive and costly rules; cutting government spending; monetary policy focused on price stability; and more global trade opportunities. To sum up: less government and more private sector activity.
Raymond Keating is chief economist for the Small Business & Entrepreneurship Council, an advocacy, research and training organization based in Washington, D.C., and established to protect small businesses and promote entrepreneurship. Reach Keating through the website at www.sbecouncil.org.