Wednesday, December 28, 2011

Small Business Owners: "It's Lack of Demand, not Regulations!"

For one small-business "advocate", it has become an article of faith that “uncertainty” about new regulations and higher taxes is frustrating the ambitions of small-business owners. (Neither are true, or at least, not their #1 concern.)

A “massive federal regulatory nightmare,” is how the head of the National Federation of Independent Business, Dan Danner, puts it on the organization’s Web site, one that “stifles innovation, grinds small businesses down and prohibits job creation.”

And Republicans in the House have used these concerns to wage an aggressive campaign against federal regulations sanctioned by existing law as well as any proposal to raise taxes in order to reduce the deficit. But it turns out that these concerns are not shared by as many actual small-business owners as you might expect.

In a recent poll released by the Hartford Financial Group, when small-business owners were asked to name the single biggest barrier to success, only 9 percent cited government rules and regulations. Just 2 percent cited “too many taxes or uncertainty related to taxes.” The Washington Post reported recently that economists say regulation has little impact on job creation over all. Read the New York Times article: Do Small-Business Owners Feel Overtaxed and Over-regulated? A Survey Says No

In the face of the country’s unemployment crisis, many Republicans have portrayed regulations as the economy’s primary villain.

The Washington Post asks, "Does government regulation really kill jobs? Economists who have studied this question say the overall impact on employment is minimal.

But House Republicans have identified 10 “job-destroying regulations” they want to repeal, and a steady stream of bills have been proposed to block environmental rules governing everything from cement plants to boilers.

GOP candidate Mitt Romney has vowed that on his first day as president, he will “tear down the vast edifice of regulations the Obama administration has imposed on the economy.” The White House, meanwhile, says it is making a determined effort to assess how rules are affecting jobs.

But data from the Bureau of Labor Statistics show that very few layoffs are caused principally by tougher rules. Whenever a firm lays off workers, the bureau asked executives the biggest reason for the job cuts. In 2010, 0.3 percent of the people who lost their jobs in layoffs were let go because of “government regulations/intervention.” By comparison, 25 percent were laid off because of a drop in business demand.

In many cases retrofitting and monitoring plants to meet EPA environmental standards actually creates jobs. In reality, it's really cheaper labor overseas and automation that are the biggest job killers. That, which helped create high unemployment and/or low domestic wages, which reduced "demand". It's not high taxes or federal regulations that's hurting small businesses, never mind the massive corporations.

Large corporations have long complained that spending money following rules means there’s less left over to invest in research or expand their businesses. But recently it was reported by the New York Times that from a CEO's perspective, long-term research and development is a lousy investment. Research projects cost a lot of money and often fail. And even when they do work, some other company can come along and copy all the best ideas free.

A retired CEO of DuPont said it's tough to get investors to think more than two years ahead — at most. “The stock market pays you for what you can do now,” he said. As a result, DuPont isn’t the only American company changing the way it does R&D. Corporate research labs at IBM, AT&T, Xerox and others have also been slimmed way down or cut altogether.

The Republicans argue that getting rid of regulations will directly create jobs. President Obama has heard versions of this argument from powerful business lobbying groups and CEOs.

Economists who have studied the matter say that there is little evidence that regulations cause massive job loss in the economy, and that rolling them back would not lead to a boom in job creation. Firms sometimes hire workers to help them comply with new rules. In some cases, more heavily regulated businesses such as coal shrink, giving an opportunity for cleaner industries such as natural gas to grow.

“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or major job gains,” said Richard Morgenstern, a senior fellow at the nonpartisan think tank Resources for the Future who worked at the EPA starting under the Reagan administration and continuing into President Bill Clinton’s first term.

A decade ago, in a landmark study, Morgenstern and others looked at the effect of regulations on four heavily polluting industries — pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills — between 1979 and 1991.

The researchers concluded that higher spending to comply with environment rules does not cause “a significant change” in industry employment. When jobs were lost, they were often made up elsewhere in the same industry. For every $1 million companies spent, as many as 1.5 net jobs were added to the economy.

The White House has tried to be particularly sensitive about the burden on businesses when rules are added. This year, Obama issued an executive order that agencies pay close attention to how rules might affect employment.

Do small businesses in the U.S. create most of our jobs? According to the Census Bureau the vast majority of small businesses have 9 employees or less. In 2008 there were 27,757,676 total firms.
  • Of these only 21.8% have any employees at all.
  • Of the firms that have employees 78.8% have 9 employees or less.
  • Of the 6,049,655 employer firms in 2007 61.2% had sales receipts of $999,999 or less (so the owner isn't pay themselves a million-dollar salary.)

Jared Bernstein says in a post that most people don't work for small businesses, and that such businesses are not the engine of job growth. He cites 2008 census data, which says 61 percent of American companies are small businesses with fewer than four workers — but more than two-thirds of the American work force is employed by companies with more than 100 workers. You can tweak the definitions, but even if you define “small” as fewer than 500 people (as the federal government does, basically), you still find that half the work force is employed by large businesses.

On Fox News Eric Bolling had said that 96% of the U.S. Chamber of Commerce's members are small businesses. But what he also deliberately failed to mention was that only 11% of all small American businesses actually belongs to the U.S. Chamber of Commerce, which is generally considered to be a conservative organization, and is one of the largest lobbying groups in the U.S., spending more money than any other lobbying organization on a yearly basis. (Read Millionaire Tax Hurts Small Businesses - DEBUNKED!)

Someone like Karl Rove can incorporate himself as a consultant, obtain legal "limited liability" for his personal actions, call himself a "small business", not hire anybody, and join the U.S. Chamber of Commerce. There are many "small businesses" like this.

According to a recent poll released by the Hartford Financial Group, when small-business owners were asked to name the single biggest barrier to success, only 9 percent cited government rules and regulations. Just 2 percent cited “too many taxes or uncertainty related to taxes.” (The Washington Post reported recently that economists say regulation has little impact on job creation over all.)

For years, economists and the Bureau of Labor Statistics and the Treasury Department and countless others have been telling policymakers that business aren't hiring because of a lack of demand for their goods and services, a concept that even Republicans used to understand. But because they don't like Nobel Prize-winning economists and official government data, or because they're intentionally sabotaging the economy for political gain — or both — Republicans have pretended not to hear. Even when corporate executives and small business owners have said lack of demand is the problem, Republicans have pretended not to notice.

Economists from across the political spectrum have also weighed into this debate and reached the same conclusion. Bruce Bartlett, a senior advisor in both the Reagan and George H.W. Bush administrations, said that “no hard evidence” has been offered for claims that regulation is the “principal factor holding back employment.” And in a Wall Street Journal survey of economists, 65 percent of respondents concluded that a lack of demand, not government policy, was the main impediment to increased hiring. (Read the full article at the U.S. Treasury.)

Here's how absurd the GOP's blame-everything-except-demand economic analysis is: A new survey (PDF) of small business owners conducted by the National Federation of Independent Business finds that not only do more small business owners identify lack of demand as the biggest impediment to growth than any other factor, most of those who identify "uncertainty" as an impediment really mean lack of demand.

It's interesting to note that the National Federation of Independent Business favors the standard conservative agenda of lower taxes and deregulation. Indeed, the group has become a purely partisan operation, fighting more for Republican electoral victory than small-business growth. For example, it opposed the president’s jobs bill, even though independent analysts estimated it would significantly increase economic demand, and the federation’s own survey shows that “poor sales” — a k a weak demand — is a much bigger problem for its members than taxes or regulations.

The NFIB's political action committee, SAFE Trust PAC and the NFIB Direct Response Director John Buchanan, claim to be a nonprofit, nonpartisan organization, but they support Tea Party candidates, and the right-wing advocacy organization overwhelmingly supports Republican candidates. It's business partners include the likes of Dell, FedEx, and Bank of America.

But even the NFIB found that "25 percent named "demand" as their single greatest impediment versus 22 percent who named "uncertainty"...and that no "other impediment is nearly as significant." Just 11 percent, for example, named "regulatory or legal issues their most significant impediment," contrary to non-stop Republican rhetoric about onerous government regulations. And only five percent identified a "lack of skilled employees" as their biggest problem. (Engineers in China earn what an employee of McDonalds earns in the U.S., so having a skill or college education doesn't guarantee a job in the U.S. either.)

The Republicans love to claim that "uncertainty" about taxes and regulations is keeping businesses from hiring, so it isn't hard to imagine them taking comfort in the fact that "uncertainty" was the second-most-frequently mentioned impediment to growth — or trying to concoct some excuse for claiming it was really first. So here's where things get interesting: It turns out that when small business owners say "uncertainty" is an impediment to growth, they mean economic uncertainty, not political uncertainty. And by economic uncertainty, they mean uncertainty about demand.

Jared Bernstein also points out regarding job creation that "it’s not small businesses that matter, but new businesses, which by definition create new jobs. Real job creation, though, doesn’t kick in until those small businesses survive and grow into larger operations."

And those larger multi-national corporate conglomerates have an army of well-paid litigation lawyers and tax attorneys to skirt the laws and avoid taxes. At the very most, government regulations might sometimes reign in the CEO's multi-million dollar salaries paid as stock options whenever they increase shareholder value by cutting jobs and paying the least "effective" tax rate for corporate taxes.

It's been proven time and again, for the past two centuries, that the larger corporations have had little-to-no regard about the air we breath, the water we drink, the safety of their products, or worker safety. Their bottom line and profits is their first and only concern. The owners don't build their factories in their own backyards, but usually in impoverished areas where the taxes are low and workers are desperate for work...or where there's little-to-no regulation and where wages are low, like in China.

Without regulations, American children would be poisoned with lead like they are in China.

And remember, those that advocate for big corporations can't also advocate for small businesses (privately owned small entrepreneurships). Whenever possible, small businesses are usually destroyed by their bigger corporate competitors in many different ways for the larger market share, or they are just bought out. Mergers and Acquisitions and legal monopolies are still alive and doing very well in America.

* For more about small business concerns, read this New York Times piece.

My related posts:


  1. Jared Bernstein - U.S. Manufacturing Competitiveness in Global Trade

    "Those of us ensconced in debates in support of U.S. manufacturing often hear opponents claiming that the over-regulated U.S. labor market and unionized heavy industry render us un-competitive in global markets."

  2. Restrictive sign laws are preventing small businesses from competing. If potential customers are unaware of your business, you can't compete.

    Look around your city, if it is like mine most of the signs are big corporate ones.

    Small businesses are clustered on expensive monument signs that are hard to read or have no street signage at all. A few have decent size signs that have been grandfathered but which will be pulled down when ownership changes.

    I am closing my toy store which is located in a 5 store strip mall at a busy intersection of two streets. 40,000+ cars a day pass through the intersection.

    My store is invisible to them because it is back from and below the road at the intersection. The single entrance to the mall is very dangerous.

    I was promised a street sign before I signed my lease. (Did not get the promise in writing, my mistake.) Another store was given the same promise. Sign was never erected. The other store is out of business as well, not enough customers to stay open. A 3rd store also closed due to lack of customers.

    I am not allowed to erect my own sign and the landlord, citing cost, refuses to elect the city mandated, expensive and ineffective multi-tenant monument sign.

    Street signs are inexpensive and work. They also give small businesses a fighting chance.

    TV, radio, newspapers, direct mail, email, belonging to two chambers of commerce, A+ BBB rating, Facebook, web site, and support of local charities did not save my business.

    Customers love my store, but not enough know about me to save it.

    I offer toys from a major toy company and have permission to display their logo. That logo is all I need to get customers, but, I'm not allowed to display it where it can be seen.

    I just had a real estate person visit my store to discuss finding a better location now that my lease is finally up. She said that she visits the pizza store next to my store twice a week. She drives past the mall daily and lives a short distance away. She had no clue I existed and needs my products for her grandchildren. (I have a big sign above my store.)

    Didn't have to explain to her why I need to move.

    Please add restrictive sign regulations to the list of things that are killing small businesses.

  3. Nice I also share with you something hope this helpful for you my friends. Don't let a Realtor (who represents landlords) show you space all over town. This will effectively create commission splitting between the property's listing agent and the outside agent. It will also undermine your negotiating power, as the agent will know how you feel about every location. Realtors may be helpful in pointing out a good location--but will they negotiate aggressively on your behalf if it means jeopardizing their landlord-paid commission? (The higher the rent, the higher the agent's commission.) Even the most altruistic agent will struggle trying to serve two masters. Check it out thanks.
    small business leasing