Small Businesses Create Jobs or $600 Won't Do It, Jobs Will

President Bush intends to nominate Steve Preston, the current Administrator of the U.S. Small Business Administration (SBA), to run the Department of Housing and Urban Development. The housing crisis has been prevalent in the news. But our economic problems have been worsened by the marginalization of the agency Mr. Preston is now running. It's time for a critical look at what has happened to the SBA.

Successive interest rate cuts by the Federal Reserve and the stimulus package the President has signed into law may help our ailing economy in the short run. But the roots of the problem go much deeper. Our homes are losing value, access to credit is drying up, the stock market is volatile and food and fuel prices are skyrocketing - all signs that consumer spending will continue to shrink.

And $600 won't do the trick. The best way to get people spending again is to create good jobs at good wages. Over the past 15 years, small businesses created over 93% of all net new jobs. That is almost 22 million new jobs. In fact, during the first four years of this century, large businesses have already shed over 3.6 million jobs. Today, small businesses make up 99.7 percent of all employer firms. The best engine for job growth and the economy continues to be small business.

Despite the great advantages of small businesses, the Bush administration has counter‑intuitively starved the Small Business Administration of the staff and resources it needs to advance this crucial sector of our economy. And now, the credit crunch is hitting small business hard. Earlier this year, the Federal Reserve found that a third of U.S. banks had tightened lending standards for small business loans.

Under the Bush Administration, the SBA has sustained the largest budget cut - 40 percent - of any federal agency. The Democrats in Congress were able to restore a portion of that funding and it now stands at a 25% cut. But that's still the largest of any federal agency. How many dynamic entrepreneurs have been denied a chance to contribute to our economy and help it grow? Back in 1969, a little company called Intel got started with help from the SBA. And there have been many similar success stories ‑ until the short‑sighted Bush cuts.

The SBA should immediately be empowered to issue more loans, more rapidly ‑ to help entrepreneurs start new businesses and to help existing small business owners expand. In the long term, the Small Business Administration's budget should, at a minimum, be restored to its Clinton Administration levels of close to $1 billion a year. That is about half of what we spend in Iraq ‑ in one week. We are starving the American Dream that our military is meant to defend.

Perhaps most important, the business community must push Congress and a new President to re‑imagine the SBA's mission and purpose. We need to look at small business and entrepreneurship through the prism of the globalized economy. That means paying more attention to the effects of trade and immigration policies on small business. It means widening the scope of businesses the SBA supports beyond conventional cottage industries. It means focusing on new public/private partnerships for business development. It means empowering the SBA to make loans to nonprofit organizations that fill in many gaps in government services. And it means raising the ceiling on the size of the businesses the SBA helps. Our major trading partners all provide SBA‑style services, products and loans to mid‑sized companies. But too many American businesses lose this kind of assistance just when they're getting big enough to compete internationally.

We don't yet know if we are facing a recession that will be short and shallow or long and deep, but that is precisely why boosting small business in this unsteady environment is such a smart move - it works in either scenario, because good jobs at good wages is the right solution every time.

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Fred P. Hochberg is Dean of Milano The New School for Management and Urban Policy and was deputy administrator and acting administrator of the Small Business Administration from 1998 to 2001.

Comments

[WilliePilgrim]

If you have ever considered starting a small business you would be wise to take a pill and hope to get over it. Without a doubt the most daunting aspect is the paperwork requirements in not just toeing the line for the IRS, Social Security, State, Local and god only kows what else for oneself, but the rest of the mess. Supporting small business is the best of intentions but unless it's backed up by actually tearing down the barriers and complexities of actually starting up and running with only a few employees, it will forever be like starting a race with your shoelaces tied together. So,when I hear a politician promising to help the small business person and doesn't specifically say "I'm going to eliminate the need for small business to fill out forms and submit reports" I just roll my eyes and shrug my shoulders, unless my idea of a small business is to have a professional staff in place within' 6 months time who are paid to do the things that most non-professionals find incomprehensible and intimidating.

[Joyful]

The best way to create small businesses isn't through more funding to the SBA; it's establishing universal single-payer health insurance. I know lots of people who'd love to be self-employed, as I am, but don't dare leave an employer because of the unavailability and/or unaffordability of health insurance for themselves and/or their families. Potential entrepreneurs are eager and capable but not foolhardy.

And Immanuel is correct: "Small business" means 500 or fewer employees. Moreover, to obtain government contracts set aside for small businesses, big businesses play around with spinoffs, corporate shell games, subsidiaries, and the like, so even a 497-employee small business is apt to get shut out.

[joebaggadonuts]

Bush pays constant lip service to the small business model, while at the same time cutting off its air supply. Why should we be surprised about that at this point? We have had nearly 8 years to learn that this is what the Administration does. Say and then pretend to do what Americans want and need and then sucker punch us when our guard is down.

[KillTheMessenger]

Raise the minimum wage by 80% and be done with it.

[ImmanuelGoldstein]

Indeed, in 1969 the minimum wage was the equivalent of $9 and hour. Our much vaunted high productivity economy should easily support one of $12 hour.

Increasing the minimum wage will increase consumer spending , INCREASE EMPLOYMENT, and amelieorate poverty without the bad effects of welfare. A win-win for conservatives and liberals alike, I would think.

[ImmanuelGoldstein]

Yeah but does small business create GOOD jobs? Small businesses pay less, have fewer benefits, and fewer opportunities for advancement. Plus a good percentage of small business job "growth" is in fact churning created by the higher rate of failure in small business.

Finally, the entire concept of 'small business ' in these number is misleading. Everybody thinks 'small business means some one room startup. These number include businesses up to 500 employees. Not at all what most people think.

[bgregs]

Actually, until VERY recently small businesses were providing better benefits to employees than large businesses. Look at the issue of Walmart vs Mom-n-Pop stores around the country. Wal-mart comes in and creates some jobs while costing more, and the employees are paid less, with fewer benefits than the small business employees who are now unemployed.