Tag: challenges facing small business

Small businesses play a vital role in the U.S. economy.  Why, then, are they treated so poorly by government? The Small Business Administration enumerates the top ten vital roles these enterprises play:

10. Small businesses make up more than 99.7% of all employers.
11. Small businesses create more than 50 percent of the non-farm private gross domestic product(GDP).
12. Small patenting firms produce 13 to 14 times more patentsper employee than large patenting firms.
13. The 22.9 million small businesses in the United States are located in virtually every neighborhood.
14. Small businesses employ about 50 percent of all private sector workers.
15. Home-based businessesaccount for 53 percent of all small businesses.
16. Small businesses make up 97 percent of exportersand produce 29 percent of all export value.
17. Small businesses with employees start-up at a rate of over 500,000 per year.
18. Four years after start-up, half of all small businesses with employees remain open.
19. The latest figures show that small businesses create 75 percent of the net new jobs in our economy.

The Wall Street Journal notes that while elected officials issue a great deal of affectionate about these endeavors,

“The legislative track record tells another story. It is one in which the interests of big corporations are dominant, and many laws and regulations seem designed to bend the marketplace in their favor and put small, independent businesses at a competitive disadvantage. Since the late 1990s, the overall market share of firms with fewer than 100 employees has fallen from 33% to 28%, according to U.S. Census data. There are nearly 80,000 fewer small retailers today than in 1999. Starting a new business also appears to have become harder. Despite their prominence in our tech-fueled imagination, the number of startups created annually fell by about 20% between the 1970s and the 2000s, Census data shows…A report …by the research organization Good Jobs First… found that two-thirds of the $68 billion in business grants and special tax credits awarded by the federal government over the past 15 years went to big corporations. State and local economic development incentives are similarly skewed.”

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“After complying with the multitude of state and federal legal requirements, business owners should still have time left over to actually run their businesses. Entrepreneurs shouldn’t have to be lawyers to run businesses in the United States. Unfortunately, that is just about where we find ourselves today. It is not where we want to be if we desire a return to sustained prosperity…job creation, productivity improvements and welfare-enhancing innovation have slowed…the problem is caused by the combined weight of hundreds of regulatory or statutory burdens imposed on small and start-up enterprises. The problems fall into eight basic categories.

1. Poor Tax Policy.Poor tax policies raise the cost of capital, impose high taxes on risk taking and impede economic growth. Moreover, the tax system is monstrously complex, imposing inordinately high compliance costs on small and start-up firms.
2. Inadequate Access to Capital. Securities laws and, to a lesser extent, banking laws and practices, restrict entrepreneurs’ access to the capital needed to launch or grow their businesses. After all, without capital to launch a business, other impediments to entrepreneurial success are moot.
3. Expensive Health Care.The U.S. health care system is the most costly in the world and the Patient Protection and Affordable Care Act (Obamacare) imposes high costs on firms with 50 or more employees.
4. Burdensome Energy and Environment Laws.Environmental and energy regulations raise the cost of energy and limit development of energy resources.
5. High and Growing Regulatory Costs.The cost of complying with increasingly burdensome and complex regulations continues to grow rapidly. These rules have a disproportionate adverse impact on small and start-up companies that can ill afford to use scarce resources on regulatory compliance rather than growing their business.
6. Onerous Labor and Employment Laws.Increasingly complex and opaque labor and employment laws raise the cost and risk of employing people. They reduce wages and cost jobs.
7. Bad Immigration Rules. The U.S. immigration system makes it difficult for firms to gain access to talented foreign workers and for immigrant-entrepreneurs to enter the United States to start a business.
8. Costly Legal System.The U.S. legal system is the most costly in the world, imposing high and potentially ruinous costs on small firms.

The Goldwater Institute  has proposed an approach to address the obstacles facing small business:

“States can take a major step toward restoring the freedom of enterprise that is every American’s birthright by enacting model legislation called the Right to Earn a Living Act. The proposed law recognizes that the right of individuals to pursue a chosen business or profession, free from arbitrary or excessive government interference, is a fundamental civil right. The act provides substantive protection for those rights while at the same time preserving the ability of state regulatory agencies and local governments to protect the public through legitimate and proportionate health and safety regulations. The act would require that any ordinance or rule that limits entry or competition in a business or profession ‘shall be limited to those demonstrably necessary and carefully tailored to fulfill legitimate public health, safety, or welfare objectives.’ That language contains three essential components: legitimate, necessary, and tailored. ‘Legitimate’ refers to traditional police powers such as the protection of health and safety. By contrast, economic protectionism— favoring some businesses over others — is not a legitimate object of government. ‘Necessary’ and ‘tailored’ refer to proportionality. Is a ban or monopoly necessary, or would free or regulated competition suffice? Is a particular rule properly applied to a specific profession, or is it largely unrelated to the products or services that are provided?”