As we move past election season and take a well-deserved breath, our economy is slowly regaining its footing. Unfortunately, the reality remains that unemployment is far too high and the rate of hiring is way too low. Though the 7.9 percent unemployment rate we have today is markedly better than even a few months ago, it is well outside of where it needs to be in order to generate real economic growth. Some gamble that lower tax rates will spur hiring. Others argue that something akin to a second stimulus will do much the same. Yet, it's the small businesses where the spark for our revival is ready to be struck.
The public option, so to speak, is not a viable option when our government can barely keep the lights on. Public sector spending and hiring has fallen precipitously since the financial meltdown and recession (in fact, state and government local spending growth hit its lowest level ever earlier this year), and that won't change until we work our way out of the deficit to the point where the government feels confident enough to increase payrolls again. Ultimately, TARP and the stimulus were about as heavy a lift as the government can manage for right now. At best, they can and do maintain a stable status quo. That's simply not enough for a recovery.
Nor is big business going to come to our rescue. Though big business does contribute greatly to total private employment -- since 1990, more than 40 percent of the total persons employed (TPE) comes from firms with 500-plus plus employees -- their hiring practices of late do not reflect how good business has been. To be blunt, corporations are making record dollars, yet hiring has been stagnant, even lower, than before the recession. These jobs are also paying less and providing less real job security that will entice the level of employee talent they're seeking.
So, where are the jobs going to come from? The answer, as it has often been, lies in small businesses. Though the definition of "small" business is somewhat shaky (499 employees at a company making millions a year doesn't exactly conjure the image of a small business), and most small businesses are simply solo entrepreneurs or freelancers, this sector of the economy makes a big impact: Since the latest recession, small firms accounted for 67 percent of net new jobs.
But the truth is, the new small firms create most of these jobs. Older small firms are small for a reason -- it's just a reflection of their needs and means. New businesses are excellent creators of jobs at their birth -- they are responsible for nearly all net job growth in the U.S. -- but older firms tend to lose jobs. To quote an oft-used phrase, "you can't teach an old dog new tricks." This is isn't always true, and some businesses do find ways to reinvent and reinvigorate. However, most of these businesses survive the way all businesses do: they hand out pink slips.
Our small businesses need the kind of support that will make them global success stories. The public and private sectors have a role to play here. Congress can cut down on red tape and improve our patent system to ensure new businesses have access to the innovations and technologies they need. Financiers need to ensure entrepreneurs have access to the level of credit and capital necessary to get off the ground. And this is especially true of the entrepreneurs of my generation, whose numbers have been declining since the recession.
Medium businesses are also a hidden treasure waiting to generate dividends: Companies between $10 million and $1 billion in sales created more than 2 million jobs from 2007 to 2010. Many of these companies began small and have expanded to become major job creators. These companies may lack the access to power brokers and lobbyists, but their success is crucial to the economy as a whole. They need the full depth and breadth of resources that will propel them, and everyone else, to greater success. They, unlike big (and even some smaller) businesses, won't take this help for granted.
Sometimes words don't convey the full impact of a concept. We see a label such as "small" or "medium," and we think accordingly. Yet these small and medium businesses pack a punch well outside their weight class. Give them the tools, and they will get the jobs back.