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Sanjay Sanghoee

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Grim Reapers: How Republicans Are Killing Small Business in America

Posted: 03/01/2013 4:28 pm

One thing we know for sure is that the Republican party is pro-business, right? Wrong. The Republican party is not pro-business, it's pro-BIG-business; and as for small businesses - those little engines of enterprise and innovation that collectively embody and drive the American dream - the GOP is more than happy to kill them off.

If that sounds extreme, consider the following facts.

Despite President Obama's repeated calls to settle the sequester debate by letting revenues be considered as part of the equation with spending cuts, the Republicans have stubbornly refused to consider any compromise, and now the Senate has even rejected a proposal to give the president some control in administering the automatic spending cuts. As a result, our nation will fall into an $85 billion abyss with all the forethought and caution that a 3-year old applies while crossing the road.

Everyone from our soldiers to the federal workforce will take the hit for this irresponsibility, but the small business sector will suffer particularly badly. According to government estimates, the sequester would reduce loan guarantees to small businesses by up to $902 million. For small businesses, who have been struggling ever since the financial crisis and for whom the availability of capital is essential for day-to-day survival, let alone growth and hiring, this sudden lending crunch will add insult to injury.

Small business lending in 2011 already declined by 6.9 percent from the previous year and big banks, usually the mainstay of lending to the sector, have pulled back. In addition, the spending cuts in the sequester will hamper jobs, wages, and therefore consumption, which is a body blow to commerce and puts even more pressure on businesses to borrow money.

All this leaves the small business sector at the mercy of alternative lenders, who typically charge double the interest rates of traditional lenders and impose onerous terms on companies. What the sequester will do, in effect, is raise the cost of capital dramatically for small businesses, and by doing so, force them to fire workers, downsize operations, or even shut down completely - all of which will derail our already-fragile economic recovery.

Despite this, the Republicans don't seem to care. In fact, the only thing they do care about is preserving tax breaks for the richest Americans (who are generally not the small business owners whom the GOP uses as examples for their anti-tax arguments), fighting the closure of tax loopholes that enable major corporations to shield their money from the IRS (but which small businesses get no benefit from), and trying to gut the public infrastructure that small businesses depend on heavily to transact their trade.

And the biggest irony is that this is the same political party that spends most of its time criticizing the president for not caring about small businesses and pretending to be champions of the sector.

The problem is that the GOP is not a party of stability and prosperity but a party of strife. Jamie Dimon, the controversial CEO of JP Morgan Chase, recently said that the bank does well in times of adversity. That seems to be true of the Republicans as well, who are never as happy as when they can throw a monkey wrench into the works and then win elections on the promise of fixing whatever was broken! Mitt Romney ran his entire campaign on this theme without once acknowledging that the very reasons for our economic meltdown were the lack of regulatory oversight favored by his own party as well as non-stop obstructionism by House Republicans to President Obama's economic agenda.

This dysfunction must stop. The small business sector has historically made up more than 50% of our economy but has been steadily declining. Even more disturbing is the fact that this decline is accelerating fast. Republican propaganda over tax breaks and the fantasy of trickle-down economics hide the fact that the majority of tax breaks that are in play will only benefit big companies and uber-wealthy individuals, and that the spending cuts the conservatives want will hurt small businesses, who rely on public infrastructure and lending, disproportionately.

The Republican stance on the sequester and beyond is an abomination and needs to be repudiated. Otherwise we can kiss America's cherished small businesses goodbye, and with it, our economic future.

SANJAY SANGHOEE has worked at leading investment banks Lazard Freres and Dresdner Kleinwort Wasserstein as well as at a multi-billion dollar hedge fund. He has an MBA from Columbia Business School and is the author of the financial thriller "Merger" which Chicago Tribune called "Timely, Gripping, and Original". Please visit www.sanghoee.com to sign up for updates.

 

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