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Friday, December 21, 2012

The Decline of Small Business Is a Five-Alarm Fire Leaders Are Ignoring

Please don’t tell me that the American economy is moving in the right direction, however slowly, which I hear from politicians and commentators all the time. It isn’t. Not even close.

Key economic metrics offer no encouragement at all -- the two big ones, GDP and unemployment, are both woefully inadequate, regardless of what people say. Sure, unemployment as measured by the Department of Labor has gone down, but this is only because the denominator of how many are in the workforce has decreased and is really low as a percent of the population. Meanwhile, GDP will have grown only 1.9% in 2012, which is pathetic. After a serious recession, the economy historically gets one big bounce. It hasn’t happened yet.

The reason the U.S. economy is stalled like this, in my view, is that our elected officials, from the president, to Congress, to governors and mayors, are focused on the wrong things. They’re concerned about government spending on infrastructure, schools, police, firemen, and the military -- on government jobs and projects of all types. They’re fixated on pensions and benefits -- on how to spend money, not how to create wealth.

What they should be focused on is revving up the engine that fuels most of the American economy: small business. And right now, small business desperately needs a jump-start. U.S. small-business owners are pulling back on how much they invest in their businesses, with their net capital spending intentions for the next 12 months now at the lowest level in more than two years, according to the Wells Fargo/Gallup Small Business Index. Small-business owners are also increasingly pessimistic and plan to hire less in the next 12 months.

What’s more, in my estimation, we need a minimum of 2 million startups per year to keep our economy pumping and creating new jobs, but we're currently running at roughly 400,000 annually. This doesn’t bode well for the future of the U.S. economy, which depends on a thriving small-business sector for most of its employment and GDP growth.

It’s clear to me and to millions of other executives that when small business slows, America slows. And if small business goes the way of the bison -- slowly but surely dying out -- the country’s economy will die with it. But I’m not sure the president, Congress, governors, or mayors really know this, or they’d be responding to the decline of small business like the five-alarm fire that it is. Yet they’re not.

Now, imagine if President Barack Obama took the podium and said, “From this day forward, I am first and foremost the President of the United States of Small Business.” Sure, he alienated many businesspeople with the “you didn’t build that” line during the campaign. But he’s smart and could easily recover from that remark, by pledging his allegiance to small businesses and by telling them, in one of his trademark stirring speeches, “I will do everything in my power to help you succeed, to remove any barrier you may face, and to help you once again become the great American, job-creating powerhouse we know you can be.” I think this is the only way he can save the country.

And what if every governor and mayor followed suit and held a press conference in which they said, “Today my primary role has changed to Governor or Mayor of Small Business”?

If small-business owners’ capital spending intentions are in decline, it’s because they probably believe they’re in trouble. They may feel that way because they don’t believe national and local leaders honestly respect them for the role they play as the engine of the U.S. economy. That has to change now.


Shaleen Shah said...
December 27, 2012 at 1:45 AM  

I think that the system is dysfunctional because people running these are not perfect. Still, if both government and businesses are willing to make a few sacrifices for the benefit of all, I think it can give us something soft to land on when we go over this fiscal cliff and fall. Good luck to all small business owners this 2013!

Gabby said...
December 31, 2012 at 9:37 PM  

It's been a long time since American's have rallied as a unit- dedicated to a specific cause. When any group of people gets momentum going things can change. This is a good one and worth while.

Craig Linfoot said...
January 5, 2013 at 5:02 AM  

I'm currently based in South Africa and our socioeconomic problems are formidable. Having been involved in the small business arena for a number of years I think the definitive reading for the current decline in SME's is Joseph's Stiglitz - The price of inequality. He clearly shows how small business declines in environments with high inequality. Government policies need to focus not only on SME's but inequality simultaneously.

Craig Linfoot said...
January 5, 2013 at 5:15 AM  

Reading some of your other material I would say there is big business for a company such as Gallup in South Africa. Looking at the political landscape the best place to attempt to enter this market would be in the city of Cape Town where the local leadership is most likely to be receptive.

Anonymous said...
January 10, 2013 at 4:00 PM  

As a small business owner I would have to say that President Obama promising anything would not mean much to me as I don't believe any of his past promises concerning helping small businesses. The only thing he has done for small businesses is hurt them with all of his new regulations and taxes. We will be hiring a new employee this year for the sole purpose of helping us be compliant with new regulations.

Ralph Adamson said...
February 14, 2013 at 2:51 PM  

As a very-small service business owner, I don't think the government can do anything to directly improve our success except to allow wage earners to keep more of their income. And I don't mean that more entitlement should be routed around. Wage earners with disposable income provide nearly all of our business. If they have to tighten their belts, we will certainly feel it first.

John Decker said...
October 4, 2013 at 10:00 AM  

This is a great article. I have been following some of the growing businesses these days and it is amazing to see what they have accomplished. I do not know much about small businesses but it seems like they are more effective is small markets. There are a few companies that I have been keeping an eye on. Yoel Wazana and MSE are doing some great things with re-manufacturing toner ink cartridges because it is helping the environment.

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