The Decline of Small Business Optimism
By Guest Post | Monday, June 20th, 2011 | Columns, PolicyBy Congressman Randy Forbes
Ants. They are the unwelcome summer guests. The plight of the summer picnic. One tiny mistake – one lemonade left unfinished, one cookie crumb fallen on a checked blanket – is the surest way to put a damper on any summer afternoon. They appear slowly, one carefully making its way across the blanket to the fated leftovers, another following close behind. With careful calculation, the others follow suit working their way across the blanket and onto the once pristine spread. Left unchecked, they slowly take over, as if one is an invitation for another – until there are so many ants that the picnic is effectively ruined.
Small businesses are facing a similar plight. Only the unwelcome guest at the proverbial picnic is the federal government and small businesses are left feeling the effects.
The National Federation of Independent Business, an organization that regularly surveys small businesses across America, reported a decline in small business optimism for the third straight month. Nearly two-thirds of small business owners responding to the survey said it was a bad time to expand their business operations.
Small businesses employ half of our nation’s private work sector, creating almost two-thirds of all net new jobs over the last 15 years. The idea that “as small business goes, so goes the economy” is no surprise. Small businesses are the anchors of Main Street USA. They are the backbone of our economy. When small businesses are not optimistic, they are hesitant to invest, grow, and create jobs. And when they do not invest, grow, and create jobs, it impedes our nation’s economic growth.
A lack of small business optimism is obvious on one level. The unemployment rate is hovering around 9% with little signs of shrinking. Many individuals have postponed starting new businesses. Capital to cover start up expenses is becoming harder to obtain. There has been a 23% drop in the rate of new business creation since 2007, resulting in as many as 1.8 million fewer jobs for Americans. But there is something else about the NFIB report that is even more concerning – and that is the reason why small businesses are not optimistic and why optimism is continuing to decline.
The economic data released by the NFIB makes it clear that the increasing role of government in the lives of small businesses has left them treading in rough waters. While there is nothing new about some degree of government involvement in the lives of small businesses, the role of the federal government has increased significantly in the past several years in the form of taxes, regulations, and bureaucratic red tape. NFIB chief economist Bill Dunkelberg has said specifically that the growing debt and deficit, the threat of higher taxes, increasing regulations, and the uncertainty of the new health care law are the “icing on the cake” that has caused small business owners’ optimism to rescind to recessionary levels.
Small businesses have been overregulated and overtaxed. And like the ants at a summer picnic, each new regulation or taxation seems to be an invitation for yet another. Recently, new EPA regulations are forcing businesses to meet new compliances, causing some plants to shut down because of the costs to meet those rules. The Wall Street Journal reported this week that the new EPA regulations alone “will destroy 50,000 jobs and another 200,000 down the supply chain.” This type of overregulation is the type of action that slowly wears on business optimism.
The federal government lawsuit challenging Boeing’s move into right-to-work state South Carolina is also indicative of the federal government’s increasing interference in business decisions being made by, and rightfully belonging to the business itself. The National Labor Relations Board claims Boeing broke federal labor laws when it decided to open a $1 billion nonunion plant in South Carolina because past union strikes at Washington facilities disrupted production. This type of toxic federal involvement does not paint a hopeful picture for business owners, and the cloud of frustration and uncertainty by such heavy-handedness trickles down to even the smallest of companies.
Government was not designed to be the center of the marketplace, nor was it meant to be a barrier to economic growth. With each new overreach of the federal government into the lives of small business, the more it continues to choke the life out of innovation and entrepreneurship in America. Our nation was founded on the tradition that an individual could have the freedom to own and grow their own business. While there is some place for the federal government to ensure safety and protect consumers, there is much evidence that government regulations have gone far beyond that role. The slow march of the federal government into the lives of small business is largely to blame for the decline of small business optimism and, if left unchecked, it could be the death knell of Main Street all across the country.
As leaders in Washington, we need to be sending a different message to small business owners; one that shows government is an enabler, not a barrier. Leaders in Washington have the big and necessary task of addressing our debt crisis, ending regulatory burdens, and preventing government experiments like stimulus packages that have burdened our economy. The only way to do this is to get government out of Main Street and cultivate an environment where small businesses are free to do what they know best: innovate, grow and create jobs.
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3 Responses to "The Decline of Small Business Optimism"
It would be more accurate to say that there is a war against small business. The left finds small businesses too complicated to manage as a group, too diverse in their wants and needs and too difficult to extract campaign money from. The left wants a few big companies that it controls and knows who to call. It also makes it easier to install their buddy at the top, as with Govt Motors.
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Dear Congressman Forbes,
As a supporter, I offer the following rebuttal with regret. If I’m reading your post correctly (and I reviewed it multiple times), you credit lack of capital and the increasing role of government – specifically increased EPA regulations – as the root cause of rescinding optimism and our hesitation to grow? If so … it’s not so (and also not supported by NFIB survey results).
CREDIT: We needed access to credit ‘yesterday’; you guys missed that one, too. The NFIB survey data shows 90% of owners now report their credit needs are met or they don’t want to borrow. For those business that do, access to credit will likely remain tight, regardless of future Fed action, until the banking committee puts pressure on regulators to resolve the conflicts between Dodd-Frank and Basel III. Until then, over one trillion dollars of QE1 and QE2 cash will likely remain ‘velocity-less’ as banks strategically (and wisely) hold onto the extra capital.
As an aside, it also doesn’t help to learn (at the same time rumors circulate about a QE3) that the Fed funneled $600 billion of QE2 directly to insolvent foreign financial institutions, rather than domestic US banks. $600 billion in US cash that was promptly repatriated … nice!
REGULATION: I am puzzled re: your inclusion of pending EPA coal-fired power plant regulations and Boeing’s lawsuit into a discussion regarding ‘small’ business. Neither fits the category, yet both issues fuel partisan divide. And as I understand it, most coal plant shutdowns (caused by pending EPA regulations) will be older plants – many already scheduled for shutdown – as power company owners choose instead to invest high scrubber costs in newer forms of energy like solar, ‘clean coal’, and natural gas.
Mr. Forbes, it’s not burdensome regulations (or lack of credit) preventing most small business expansion or impacting our confidence, it’s uncertainty – “the enemy of all markets.” The NFIB data makes it perfectly clear we have no confidence in the already executed and/or proposed economic policies -– nor do we have high confidence in our political leaders’ capacity or fortitude to make disciplined, sound, and/or non-partisan fiscal decisions.
All indices point towards continued stagnation and a prolonged period (5 years +) of no-growth or slow-growth in most sectors. Most of us will continue to dig in, hold firm, reduce debt, reduce overhead & expenses, liquidate, reduce inventory levels, hold down compensation, and reign in risk until our sales figures improve.
It’s that simple, sir. No amount of government stimulus, incentives to hire, quantitative easing, interest rate reductions (how much lower than zero can you go?), tax breaks, or regulatory easing will change the fact that sales and expectation of future sales drive expansion – and increase optimism.
While government policy and an alarming lack of lawmaker foresight created the conditions for this perfect storm, there’s not much congress can do now to fix it. You can certainly create a climate favorable to business and one that encourages domestic production, but beyond that your power to impact economic recovery (in the short term) is limited. Focus instead on the problems you can solve. Real debt/deficit reduction, tax reform (including restoring horizontal equity), restoring Social Security and Medicare to solvency, and investing in future technology would be a great start.
Respectfully,
Jay D
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