July 29, 2014 SIGN IN | REGISTER

No Economic Recovery Without Small Businesses | Commentary

By some measures, the economy is fantastic. Interest rates are low. The Dow has been hitting record highs, only to exceed them the next day. The S&P 500 just topped its previous high from October 2007, well before the recession started, and home prices are rallying. The New York Times has called it a “golden age for corporate profits.” Indeed, profit margins are at an all-time high.

Yet by other measures, the economy is still in peril. The March and April jobs reports showed barely enough jobs created to keep up with population growth and well less than the 250,000 needed monthly for a thriving economy. While there are signs of slightly decreasing unemployment, from 7.7 percent to 7.6 percent, that is largely because people have stopped looking for work. It is estimated that half a million people quit looking for work in the past year alone. The Center for Economic and Policy Research calculated that at current job growth rates, it will take until the year 2020 to reach stable employment.

What is happening is that we are in the midst of a false recovery — the economy may have gotten out of the recession and into second gear, but it’s stalling in third. That is because economic recoveries, irrespective of any other economic indicators, always come down to jobs. Recoveries are not about corporate profits nor are they about stock market rallies. The current recovery has depended far too much on federal stimulus, government bailouts and unprecedentedly cheap money from the Fed. These cannot persist.

There is simply no such thing as an economic recovery without a jobs recovery. And historically, there has never been a jobs recovery without small-business growth. Small businesses typically employ more than half the workforce and create a full two-thirds of the new jobs in the United States. Small businesses provide investment, innovation, competition and entrepreneurial energy so essential to long-term, sustainable growth. So it presents a big problem that the National Federation of Independent Business’ Small Business Economic Trends report for April 2013 showed that a net zero percent of small-business owners plan to hire in the near future. This is a huge blow to the economy.

While this is dismal news, it’s not irreversible. The solution is actually simple: First, we need to incentivize startup companies, especially those that create jobs. The number of startups has declined in recent years, in large part because their access to capital dried up, and that has had immediate negative effects on employment and longer-term effects on the future of innovation. To reverse this trend, we need to shift funding to new companies and tax credits to entrepreneurs. Small businesses need capital to grow. Traditionally Congress helped make this easier, by giving the Small Business Administration the resources to guarantee small-business loans. Yet at the very time this program must be continued and expanded, it is being starved. As a result of the sequester, the SBA loan guarantees program was cut. Congress should again fund this program, in addition to the Small Business Innovation Research grants that have helped launch many great American tech startups.

comments powered by Disqus

SIGN IN




OR

SUBSCRIBE

Want Roll Call on your doorstep?