Richard Eidlin: Investing in American means investing in its small and microbusinesses

money-newlinksIn his State of the Union speech, President Obama focused on investing to create the, infrastructure, work environment and skills for good jobs and a thriving middle class. But, do you know how most jobs get created in America? The answer is small and microbusinesses.

As the Kaufman Foundation has noted, the majority of jobs created in the US are done so by companies with 50 or less employees. There are more than 25.5 million microbusinesses – 90 per cent of all businesses – in the US, employing more than 31 million people and generating $2.4 trillion in annual receipts. With many of the largest companies sitting on trillions of dollars in cash, rather than investing it and the jobless rate close to 8%, it’s now time to fully acknowledge the vital role that small and microbusinesses play in stimulating economic activity.

The problem is that small businesses receive much lip service but little action from policymakers.

More and more firms are starting smaller and staying smaller. As the Bureau of Labor statistics reported in March 2012, the average size of new start-ups went from 7.6 employees in the 1990’s to 4.7 employees in 2011. And the share of the self-employed in the labor market is growing exponentially. If one in three microbusinesses hired just one additional employee, the US economy would achieve full employment. In addition, small and microbusinesses are more innovative and more likely to focus on positive social and environmental goals.

In many ways, these businesses represent our best hope for achieving the economy of the future. And yet these entrepreneurs face enormous challenges accessing the capital they need to start and grow their businesses. Those in underserved communities are especially challenged, due to lack of assets, credit scores, and net worth.

As the President noted in his State of the Union address only “a thriving middle class” can ensure long-term growth, and Americans must be given the tools to succeed. We applaud the President’s focus on attracting jobs to the US, calling for smarter investments in manufacturing and increasing the minimum wage, for example. But, the federal government must also play a role in providing start up entrepreneurs with the tools to create their own economic opportunities and build wealth for themselves and their community. Here are a few suggestions of what these tools need to include:

·         Revamp the tax code and increase revenue, by eliminating corporate tax havens that allow capital to be offshored. An estimated $100 billion or more in tax revenue is lost to corporate tax havens every year. Our economic progress is undermined when companies are rewarded for financial manipulation rather than innovation and productive investment.

·         End wasteful subsidies that benefit the nation’s largest companies. In an era that requires trimming the federal budget, the $5 billion in direct payments for agribusiness are not justifiable, especially when funding and technical assistance for small farmers and ranchers is eliminated. Nor should we provide nearly $4 billion in annual incentives for the oil and gas industry.

·         Provide Small Business Access to Capital. There is no shortage of determined, committed, and capable entrepreneurs who want to succeed. However, there are a dearth of opportunities for microbusiness owners to access to fairly-priced capital and resources. Congress must re-instate the ability of the SBA 504 lending program to do refinancing. New Market Tax Credits should be modified to allow for lending to small businesses. And, SBA’s technical assistance, Microloan and the highly successful Program for Investment in Microentrepreneurs need to be fully funded.

·         Pass the National Cooperative Development Act. Cooperatives are a critical tool in catalyzing economic development and wealth creation in low to moderate income areas, both rural and urban, throughout the United States. Representative Fattah’s bill would provide much needed loans and seed capital to groups working to form cooperatives.

The American economy is the most dynamic in the world, and a market-based business system must remain the heart of our economy. It spurs innovation and efficiency and allocates resources better than any alternative. However, it must have a set of 21st century tools that directs this innovation onto a path that is sustainable – for our small businesses, our people and our planet.

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