Business Growth in America

Encourage Business Growth

This is the fourth installment of my plan to Fix America. Here I outline a high level plan to drive business growth primarily focused on small business since this is where about 80% of Americans are employed. As with all segments of the plan we would need to do a complete analysis to determine the econmic gain in dollars.

The heart of any capitalist economy is business. Like it or not no economy exists without business. We provide most goods and services through business and most business exists to serve its customers and profit. Yes PROFIT! That is NOT a dirty word. It is the cornerstone of all business! Without that single motive we can’t have a capitalistic society. So if we think that capitalism is the right choice and that free enterprise is important we must embrace the concept of profits. Since the majority of the American workforce is employed by small business I want to focus on them but this does not mean that we will totally ignore large business.

Why do small businesses form? Enterprising entrepreneurs see a product or service need in a target market and want to find a way to fulfill that need and make a profit. To do this they must take risk. That risk could be very large or just moderate but it is always a part of business. What is that risk? It is the risk of failure. And that failure could mean many things – none of which are good for the entrepreneur. So why take that horrid risk? So that you can get the reward if you succeed. And what is the reward? It is Profit. THERE IS NO OTHER WAY BUSINESS GETS DONE! (Obviously non- profits are excluded but let’s remember they too make Gains from Operations but just keep those gains rather than pass them on to shareholders.)

So if I am taking risk I expect a reward (profit) and to get the risk to pay off I need many things. Of all of the things necessary to win in a small business the most important are hard work (sweat equity), capital and innovation. Sadly, we have tried to move away from this formula in US and many have just been chasing the easy money. Trying to make money by consolidating others hard work, trying to commoditize certain goods and services, gutting stable companies for quick gains and so much more. We need to stop this and realize there are no short cuts to success! I know many of you reading this will argue with me but I assure you in the long run there are no short cuts. How do I know? I did it – I started a business from nothing and grew it and made it profitable – I lived it!

Sure you can get lucky and win millions or inherit them but that is not enterprise. You can invent a new technology or develop a cure for cancer but either way you will still need to invest hard work to make that succeed. Look at Bill Gates. Microsoft did not build itself. Look at Zuckerman – he had to work very hard to get Facebook to where it is. Now I ask you do you believe either of them would have done that if there was no profit to be made from it?

While greed is one of the 7 deadly sins it is also part of business and a capitalist society. More specifically, one must see a clear path to gain from an enterprise or there will be no motivation to undertake the endeavor.

So knowing all this, how do we encourage small business growth? We have to assist them in developing and encourage them to be profitable. How do we accomplish that? We do it with changes to regulations and financial incentives.

The change to the tax system will in itself be a big boost to small business but we can’t stop there. Let’s divide small business into two categories – startups and ongoing businesses. Let’s examine startups. We must offer incubators and assistance programs for startups. Specifically provide training and guidance for budding entrepreneurs who want to start a business. Many cities have these through their Chambers or business groups. We must find ways to provide these groups with incentives to exist and grow. We could offer these assistance groups special tax exempt status, enterprise zone flexibility, government funding, and most importantly incentive plans so that seasoned entrepreneurs will want to lend their expertise. Startups need guidance from these experienced business people if they are to succeed. Perhaps we could offer these executives some tax credits for their time in these programs.

All small business startups need capital to get going. Today, we have virtually closed the spigot of small business startup capital. Banks are not lending and if they do they require basically a risk free arrangement to do so. While the SBA program is supposed to fill this gap it is not. It is partially the banks fault but the Federal regulations don’t help either. We must find ways to offer startup capital to small businesses at fair rates and terms.

With experienced guidance and a good supply of startup capital these fledgling enterprises can test their innovative ideas and develop into profitable companies that employ hard working Americans. I know I am over simplifying this but I assure you I have a detailed plan to make this work. (I will write a separate blog on this in the future).

Now we need to turn our focus to existing small businesses – the backbone of the American economy. What do they need to thrive? The tax code changes will certainly help but they need capital to expand, confidence in our economy and government leadership and incentives to hire. Confidence in our leadership is a huge factor for many small businesses. I speak from experience. You do not want to take on more risk if you don’t believe that the economy is strong and your markets will buy your products and services. Small business owners who have made it across the first major hurdle – becoming profitable, will not sacrifice that by taking further risk unless they can see a strong path to further success. Unlike big businesses that have huge capital reserves that allow them to experiment with expansion or new products, small businesses don’t have that luxury. One failed experiment in a small business can mean total failure. Business owners today do not have that confidence so we need new, strong leadership to restore confidence.

The access to expansion capital is basically the same as startup capital – it is just not readily available. We have to loosen the borrowing regulations and drive lending to small business. To do this I would implement a loan guarantee program so that these small businesses (with appropriate qualifications) could get short term loans (Up to 7years) at prime plus 1%. We will never exit this recession if we cower in the corner of safety and certainty. Banks and insurance companies have to go back to taking calculated risks in exchange for profits. They can’t always be guaranteed a win.

Employment is a double edged sword for business. On one hand it is nice to have sufficient employees to do all the work and grow but on the other each new hire brings with them several burdens and challenges. Taking on an employee in todays over regulated world is a lot like getting married. The labor laws in most states are so extensive and biased to the employees, hiring is a big additional risk. Think of all the laws we have to protect employee rights not to mention if a Union is involved. Can business really thrive with this kind of limitation? Is all the regulation really necessary? Are we protecting against the exception rather than the rule? Clearly we are. Employment should be simplified. It should always be at will (unless and employer wants to offer an employment contract), it should provide pay and benefits, all increases in compensation should be purely performance based, it should offer a safe workplace, and an opportunity for the best performers to grow. Employers should not discriminate based on sex, race, seniority or creed but they should discriminate based on qualifications and performance. An employer should be able to fire an employee at any time without cause as long as it is not discriminatory. Implementing a union in a small business should be outlawed.

To spur hiring I would give qualified small businesses federal employment tax holiday of 6 month for any new employee they hire and train and keep for at least 18 months. I would relieve all small businesses under 100 employees from the FLMA requirements for 2 years. I would provide states with matching funds for the development of free trade zones and enterprise enhanced areas for small business. I would create the regulations (in the current AHP draft) for small businesses to band together in like industries and purchase health insurance. I would create special trade groups to assist small business in selling goods and services internationally. I would provide small businesses with free temporary welfare laborers who are on the dole but can’t find work (perhaps splitting the cost over longer period of time). Finally I would provide various tax incentives for the purchase of “green” machinery, buildings (LEEDS), systems and transportation.

For large businesses I would offer the following:

·        Amnesty and tax relief for all that move assets & headquarters back to the US

·        New lower corporate taxes (see tax system)

·        Special deductions for proven training programs; for green initiatives; for innovation; international trade (selling to other countries)

·        Less government reporting (decreasing government regulations)

·        Tough guidance on corruption; theft or predatory practices

·        Deductions for “loaning” top executives to “think tanks” and special advisory councils or even short term government positions

·        Tougher laws on regulating unions and bargaining rights

With these benefits and new government leadership large businesses will grow and thrive, employing more Americans and driving our economy. Naturally I am not suggesting that we eliminate all regulation and just let large business run amuck abusing people and resources for massive profits (as some democrats may suggest). That is ludicrous and no one supports that concept.

This is not top down economics it is basic macroeconomics with proven historical outcomes.