Six Steps Governments Need to Take to Help Small Businesses

Thank You for Shopping LocalSmall businesses and startups are the backbone of the American economy, and according to a report done by Tim Kane for Kauffman Foundation:

[W]ithout startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data going back to 1977…. Startups create an average of 3 million new jobs annually. All other ages of firms, including companies in their first full years of existence up to firms established two centuries ago, are net job destroyers, losing 1 million jobs net combined per year.

As we go through the political drama of the “sequestration,” the truth of matter is that the only way to reduce the deficit is by reducing unemployment. According to an article written by Business Insider‘s executive editor Joe Weisenthal:

History is pretty clear on how you reduce the deficit: Get growth, and reduce unemployment.

We ran this chart earlier this week to show how nicely deficit/GDP and the unemployment rate correlated with each other. Throughout these decades tax and spending policies have changed a lot, but it clearly hasn’t mattered. When unemployment drops, deficit/GDP drops. When unemployment rises, deficit/GDP rises. Growth is the only deficit reduction policy that matters. Deficit-GDP

Given these facts, it is clear as Jack Dorsey, creator of Twitter and founder and CEO of Square said at  Techonomy Detroit:

[A] critical aspect of improving the U.S. economy is actually improving the small business economy and making it easier to start a business and to grow small businesses.

So what can local, state, and federal governments do to make it easier to start a business and to grow small businesses? We get an answer from Stacy Mitchell, Senior Researcher at the Institute for Local Self-Reliance. In an article she states the six steps that governments must take to support small businesses:

  1. Restructure the Banking System
  2. Close Corporate Tax Loopholes
  3. Extend Sales Taxes to Large Internet Retailers
  4. Get Corporate Money Out of Politics
  5. Cap Credit Card Swipe Fees
  6. Increase the Small Business Share of Government Purchasing

Why aren’t these steps being taken? Despite the talk, we must consider if politicians are really interested in economic development or is it more important for them to maintain the status quo? Aaron Renn addresses this issues in his post “Do Cities Really Want Economic Development?

Jane Jacobs once said that “Economic development, no matter when or where it occurs, is profoundly subversive of the status quo.” This, in a nutshell, is why policies and programs that might actually move the needle and generate economic development are not implemented. The politicians, power brokers, businessmen, non-profit executives, etc. all at some level benefit from the status quo. Anything that disrupts the status quo is a threat to them.

And as Michelle Long, Executive Director of BALLE in “The Incentive of Building Local” points out:

A recent New York Times special report described the squandered opportunities of economic development in local communities across America as tax incentives tallying more than $80 billion are handed out to oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains — usually with no concrete benefit, no jobs, no improved economic climate.

[Yet, b]uilding local economies from within — investing in the people and local businesses rooted right where they are — offers profound, long-term outcomes.

And the evidence is in: From Economic Development Quarterly to Harvard Business Review, communities with a higher density and diversity of local, independently owned businesses have more wealth, jobs, and resiliency than communities that rely on large corporations and big box retailers as “job creating” employers. Rather than funneling wealth into a few hands, strengthening local business ownership results in more wealth and jobs for more people, and greater personal accountability for the health of the natural and human communities of which we are a part.

A study by the New York City Department of Transportation shows some additional way to increase local business:

NYC DOT found that protected bikeways had a significant positive impact on local business strength. After the construction of a protected bicycle lane on 9th Avenue, local businesses saw a 49% increase in retail sales. In comparison, local businesses throughout Manhattan only saw a 3% increase in retail sales. Better walking infrastructure encourages retail strength, too.

In another example from NYC DOT’s study, retails sales increased a whopping 179% after the city converted an underused parking area in Brooklyn into a pedestrian plaza. Retail sales at businesses in the rest of the neighborhood only increased by 18%. Pearl Street Brooklyn

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One thought on “Six Steps Governments Need to Take to Help Small Businesses

  1. If the government keeps raising taxes on businesses and people who own businesses won’t that cause them to cut back on their businesses and cause the economy to lose even more jobs? I can’t believe these high priced Senators and Congressmen don’t understand even basic economics.

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