By all accounts, Small Business Saturday was a smashing success. Now, in order to kick the American economy into over drive, it's time to convert it from an annual event to a year-long one. That is why we are recommending making 2014 The Year of Small Business.
We emphasized the importance of small business in turning the economy around in a blog titled, "Need to Start the Small Business Engines" that we posted early this year. In that blog, we drew upon reports from the Wells Fargo/Gallup Small Business Index and the National Federation of Independent Business (NFIB) Small Business Optimism Index which showed small businesses were not creating jobs at the beginning of 2013. We concluded "That these negative job creation numbers tell the story behind the country's sluggish economic recovery."
Unfortunately, not much has changed as we approach year's end. The NFIB opened its November Report covering the month of October by noting, "Fall arrived literally this month, as small business optimism dropped from 93.9 to 91.6, largely due to a precipitous decline in hiring plans and expectations for future small business conditions."
The Wells Fargo/Gallup Small Business Index for the fourth quarter of 2013 released in November was more upbeat noting that small business optimism was at "the second highest score in the last five years, the Index score is below pre-recession levels." (We would add well below.)
The real story from the Well Fargo/Gallup Index, however, is the tale of the tape for job creation during 2013. Our analysis of the data reveals that in all four quarters, a much larger percent of small business owners reported decreasing the number of jobs in their companies as opposed to increasing them.
The one point on which both surveys agreed was on whom was to blame for negative perceptions or concerns. The NFIB stated,
37 percent of those owners identified the political climate in Washington as the culprit -- a record high level." Wells Fargo/Gallup noted, "The number of business owners identifying 'government' as the most important challenge was much higher than in the third quarter.
So, small business owners have pinpointed the problem. And, they are pointing their fingers in the direction of our nation's capitol as a major source of their pessimism.
At this juncture, it appears that little will be done after the first of the year to improve their assessment. That's because what Congress will be concentrating on then will be the debt and deficit instead of turning their attention to what really matters. That is creating a positive climate for growth and providing the support required for small businesses to engage in job creation.
Larry Summers, former Treasury Secretary and economic adviser to President Obama, made the business case for focusing on growth rather than the deficit in an article he wrote for the Washington Post during the government shutdown. Summers stated that "Current and future budget deficits are now a second order problem relative to other, more pressing issues facing the U.S. economy." He goes on to observe, "Data from the CBO imply that an increase of just 0.2 percent in annual growth would entirely eliminate the projected long-term budget gap."
A low growth rate translates into low job creation. Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida, has done the best job that we have seen of depicting the full extent and nature of our job creation gap. Drawing upon data from the Economic Policy Institute, he writes, "We are currently 8.6 million jobs short of what the U.S. economy's potential workforce should be."
Snaith explains that if job growth were to average 350,000 jobs per month, we would be at full potential by February 2016. At 250,000, we would be at full potential in June of 2017. On the other hand, he emphasizes that if we average "just 148,000 jobs per month" (the average level for the past three months when he wrote his article in September), "it would take until December 2021 for employment to reach its potential."
It's not just economists who understand the pivotal role that growth and job creation must play in stimulating the economy. It's the American public as well.
A Gallup poll conducted in mid-September showed that the most important thing the federal government can do to improve the U.S. economy is to "create jobs/hire more people. 22 percent of the respondents mentioned this in response to an open-ended question. The next most frequent answer was "Congress, government work together" at 11 percent.
Combine those responses and one-third of the survey respondents are calling for government action as opposed to inaction. Gallup reports that the type of actions that Americans favor are "spending government money on a series of job creation proposals, including lower taxes for businesses that create jobs in the U.S. and a program that would employ people to work on infrastructure repair projects."
Small businesses are job creators. They create jobs in the U.S. Many of them are involved in the construction related trades that engage in infrastructure projects. Therefore, in 2014, Congress should listen to the voice of the people and place small businesses and job creation at the top of its priority list.
The current conditions suggest a long term and short term course of action. In the short term, Congress should pass legislation similar to the Small Business Jobs and Tax Relief Act which would have given businesses tax credits for hiring new employees.
In the long term, Congress should request a systematic and rigorous examination of each of the areas that appear to be problematic to determine their actual effect on the small business' bottom line and impact on job creation. This study should be used to develop bipartisan legislation to support enhanced small business performance.
In addition, the SBA should develop a plan to put itself back into the direct lending business. After the Great Recession started, the House twice passed legislation calling for SBA direct loans; in the senate Ben Cardin (D-MD) and Robert Menendez (D-NJ) introduced bills for direct loans as well. The bills didn't become law apparently because the SBA felt they would require substantial increases in staffing and new computer systems and cost "billions of dollars in administrative funds."
For 2014 to be the Year of Small Business, both Congress and government must stand and deliver. So too, should the corporate sector.
American Express created the concept of Small Business Saturday. They are to be commended for this. In 2014, what about extending that concept to a Small Business Weekend held monthly - say on the second weekend of each month?
That might sound far-fetched and unsustainable over a period of time. But consider the farmers markets that are open each weekend of the year in numerous urban areas across the country. Consider also the marketing heft of American Express and the other credit card giants and what they could do in terms of purchase incentives and rewards tied to special monthly-themed events and it might not seem quite so implausible.
What should be implausible is letting the current constrained conditions linger any longer for the average, mainstream and main street small business. High growth and gazelle companies are on most policymakers' and financiers' radar screens.
In contrast, the majority of small businesses who have survived the Great Recession till now are not underwater, but they are definitely treading it, and their interests remain submerged. The fact is that to get out of this "jobless" recovery small companies of varying sizes and ages -- small, medium and large -- will have to be job creators. New and young companies can't do it by themselves -- especially because these companies have been creating fewer jobs over the past decade than before.
In summary, we need to make 2014 The Year of Small Business. If we do, the economy will win big and so will the average American and the working public.
We've dealt with the supply side of the equation in this blog. We will turn our attention to the demand side in our next blog. We need both for meaningful economic growth and job creation.
To get regular updates on what Frank and Ed are writing and reading, subscribe to their newsletter by going to the following link: http://bit.ly/pivotsignup