In an economy still reeling from the effects of Wall Street speculation, promoting small businesses is a way to rebuild Main Street with the kinds of enterprises that are accountable to their communities.
Small businesses are the bedrock of the American economy. During the 2001 economic crisis, small businesses lost fewer jobs and recovered faster than large firms. From 1993 to 2009, "small firms accounted for 9.8 million of the 15 million net new private sector jobs," or "nearly two out of every three of the period's net new jobs," according to the Small Business Association Office of Advocacy in the 2011 Economic Report of the President. During periods of normal economic growth, small businesses create enough new jobs to compensate for job losses created when new companies fail.
And it shouldn't be lost on us that these new and expanding small businesses create one of the most direct paths to middle-class security. That's the path my family took. My father saved enough money to buy a dump truck that he drove himself, and then eventually grew a small trucking company -- the kind of small business that helped him buy a home and send his kids to college.
By investing in our small businesses, we invest in job growth. One of the best ways to help small businesses lift more Americans into the middle class is to remove the economic barriers that are holding small businesses back. Here's what we need to do:
1. Improve access to capital
Restoring our overall economic vitality requires expanding the credit available to small businesses to ensure that they have the resources necessary to weather economically challenging times and to invest in growth.
Small business owners have historically drawn upon home equity and credit cards, in addition to bank loans, to support their companies financially. With the collapse of the housing bubble, home equity extraction is no longer available to small business owners in the same way. In addition, nearly 80 percent of small business owners have reported that their credit card terms have changed for the worse since the economic recession -- 63 percent reported an increase in their interest rate and 41 percent reported a reduction in their credit limit. And of course, banks have become hesitant to lend to small businesses, especially at the rate they were previously.
Since the passage and implementation of the 2009 Recovery Act, lenders are starting to make loans to small businesses again, but we can do more -- starting with increasing the cap for small business loans to allow small business owners to move forward with their businesses and gain access much-needed financial resources. The government should continue to incentivize lending to small businesses and responsibly expand the lending limits to give small businesses a chance to breathe in these tough economic times.
2. Leverage government purchasing power
The federal government should leverage the trillions of dollars already being spent to create hundreds of thousands more jobs by increasing federal purchases from small businesses, particularly those with sustainable environmental and social practices.
At this point, only 23 percent of federal government contracts are required to be awarded to small businesses. With the credit crunch and a contraction in consumer demand, small businesses are seeing a double squeeze. According to a project co-sponsored by the Brookings Institution and the Small Business Administration, if the federal government increased its percentage of spending with American small businesses from 23 percent to 30 percent, the result would be an additional $100 billion investment into the American economy annually -- helping to spur an increase in job growth and solidify the economic sustainability for American businesses.
3. Cultivate regional economic clusters
Across the country, we have seen the evolution of regional economic clusters like Silicon Valley. Geographic centering of research and development has been proven to increase the quality and quantity of the developments produced.
The Brookings Institution has documented this phenomenon:
"It is now broadly affirmed that strong clusters foster innovation through dense knowledge flows and spillovers, strengthen entrepreneurship by boosting new enterprise formation and start-up survival, enhance productivity, income levels, and employment growth in industries, and positively influence regional economic performance."
Regions like the North Coast have domain expertise in areas such as sustainable agriculture, food production, and natural resource utilization (e.g. forest restoration, rainwater catchment, stream rehabilitation, biomass and biofuels, to name a few). Those strengths should be used to position the region advantageously so that the resources and skills there are harnessed.
4. Foster small business workshops
One of the greatest problems for many small business owners today is the lack of guidance and support on how to weather the current period of contraction and loss.
Small business proponents have recommended the government foster programs to bring small businesses together either in a collaborative way or through workshops to provide them with information on how to navigate the rougher times. Providing information to and educating small business owners on the resources available to them can go a long way to helping to alleviate the burden of the current economic downturn. Breaking down the bureaucratic barriers in our system and bringing the information to the people can help to prevent unnecessary losses in our small business sector.
5. Address health care costs to help small businesses thrive
When a small manufacturer in Humboldt competes in the global marketplace, she is creating jobs here at home. But she has a burden many of her competitors don't carry: she must pay the ever-rising cost of health care, which makes locally made goods and services more expensive.
Recent surveys sponsored by the Small Business Majority showed just how acute the health care challenge remains. About 67 percent of small business owners surveyed in 17 states said reforming health care was urgently needed to fix the U.S. economy. Repeal of health care reform would mean an end to the measures saving billions in Medicare waste, fraud and abuse. This would result in higher taxes for employers and employees to fund Medicare, and higher taxes mean fewer jobs.
Without reform, "small businesses would pay nearly $2.4 trillion over the next 10 years in health care costs for their workers; 178,000 small business jobs, $834 billion in small business wages, and $52.1 billion in profits would be lost due to these costs."
These hard data illustrate how interconnected our economy is -- and why it is one thing to just talk about creating jobs and another thing altogether to actually create them. That's why we need leaders who actually know how to create jobs and are willing to work with both sides to implement sound economic policies for a thriving small business landscape and middle-class jobs.
From expanding the lending limits to small businesses to supporting local markets, educating small business owners and reforming health care, sponsoring efforts that help bolster this fundamental part of our economy can put America back on track.
To learn more about Stacey Lawson and our campaign for middle-class jobs, please visit www.StaceyLawson.com.
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