The Small Business Struggle

August 1, 2016

By: Bobby Casey, GWP Managing Director

“The government is inefficient at providing public goods, and it is terrible at manipulating the markets for private goods.” ~ David Brunori, Forbes

small businessAs most of you already know, I’ve been an entrepreneur for most of my life. I’ve started businesses and had both my fair share of successes and failures. I might be one of the staunchest advocates of small businesses, entrepreneurship, and capital venture out there.

I’m a dyed in the wool capitalist, and as such, I don’t just wish for MY own success, but I genuinely wish for others to find their own success. In a free market, that is absolutely possible. Wealth is created and it is not a zero sum game.

So when I stumble upon an article that says there is a reversing growth in small business activity for the first time in four years, I’m gutted. It’s difficult not to take it personally because a lot of who I am is vested in the essence of entrepreneurship.

If we take the National Federation of Independent Business (NFIB) at their word, and accept that 50% of the US economy is small businesses, and then take the most positive spin of a 0.7 growth in small business optimism, that still does not bode well for the overall small business outlook.

As we’ve said before, there is a difference between sentiments and perceptions shared in polls versus the actions of those poll-takers. Overall, the marginal optimism reflected in the polls is not backed by very much action. These businesses aren’t investing. They aren’t hiring (largely because they can’t find qualified candidates). They aren’t expanding. They are just maintaining.

Their timidity is understandable in this political climate. There are a litany of challenges to starting a small business:

  • Overcoming regulatory and licensing hurdles
  • The cost of providing health insurance to employees; or the fees tied to NOT providing health insurance.
  • Small-business loans are also more difficult to come by with traditional banks reeling in small-business loans since the financial crisis
  • Hikes in minimum wage (depending on the state)
  • And, of course, taxes

It should go without saying that if we want a booming economy, we need to eliminate the afore-mentioned bullet points. I’m not just talking about “evening the playing field”. I’m talking about freeing up the playing field.

To be fair, I’m not saying to force banks to finance failing propositions, but the fact that the federal government will back tens if not hundreds of thousands of dollars in student loans per hapless, aimless student, while cautioning banks not to lend to businesses who actually have a plan and objective in hand, is a little ass-backward if you ask me. It wasn’t small businesses that caused the crash in 2008. It was subprime lending… which is exactly what student loans are.

The fact that government subsidizes large commercial industries like agriculture or bails out banks, but a small business struggles to get a loan also seems a little backward. I’m not asking that government subsidize small businesses, but at the very least, get out of their way!

Perhaps I should add one more bullet point to that list above:

  • Corporate subsidies (i.e. corporate welfare, corporatism, cronyism)

These are plentiful and they are without question HUGE market distortions. Please note, what I am talking about is subsidies, not tax breaks. That means, entities or industries that are actually getting funding from taxpayers, not getting a break in the taxes they pay.

I found a list of 21 federal programs that receive taxpayer money for the sole purpose of subsidizing corporations. Of course the stated purpose of every single one of them is righteous and noble… but how they actually are used and where the money actually goes? That’s an entirely different ball of wax.

You’re welcome to click on that link to see the list of corporate welfare programs, but sufficient to say, large established companies are getting a sweet deal. Now couple these subsidies WITH preferential tax breaks, and you have a business landscape that is damn near impossible for any small business to beat!

The thing about welfare is, whether you’re a poor individual, or a wealthy corporation, if you put it out there, people will take it. It’s not for them to refuse or resist… it’s for government to never offer in the first place. That quote at the beginning of this blog is the bottom line. The government sucks at providing public goods as much as it sucks at facilitating the provision of private goods. But let’s take this one step further, government also sucks at picking the real winners.

Entrepreneurs with no federal aid have often outperformed those with large subsidies. History texts ignore these stories, but James J. Hill was the only builder of a transcontinental railroad to do so with no federal aid; and while the Union Pacific went bankrupt, Hill made profits each year. Samuel Langley received a federal subsidy to invent the airplane, but after twice crashing his plane into the Potomac River, the Wright brothers, with $2,000 of their own money, launched the first successful flight from Kitty Hawk, North Carolina.” (Source: Real Clear Markets)

I know, from personal experience, that not every single small business venture will work out. But I really wish each individual who has it in their heads to forge out and do something new, different, or competitive should have that chance. I mean a fair chance. We’re talking about a conservative 50% of the US GDP here. I don’t want that number to shrink, I want that number to grow! Robust competition is how we get better products, better service, and just improve our overall quality of life.

As a consumer, you can choose which and if you support any small businesses. As a taxpayer, however, you had no choice in funding many larger corporations. Many of these corporations might have lower prices, but that’s because you already paid for them in your taxes. If you can, support a quality small business. If you already own one, thank YOU for your service! Let me know if I can help you navigate the corporate waters by helping you protect and/or keep some of your hard earned wealth.

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