For being the backbone of the economy, small businesses certainly haven’t been treated with care.
Despite accounting for around half the jobs and GDP pre-covid, including around 64 percent of new jobs, they have borne the brunt of government overreach over the past couple of years. And, if we want to turn the economy around and avoid a lengthy and deep recession, they deserve everyone’s attention.
Small businesses were among the first and longest shuttered via local and state government mandates. They received a tiny fraction of the overall federal COVID relief funds, certainly not enough to compensate for the subjugation of their property rights. Larger competitors, who often received the benefit of staying open during the pandemic, also were the beneficiaries of the Federal Reserve’s policy of cheap and available credit, strengthening those big companies’ balance sheets and giving them an unfair advantage over small businesses.
Then, those small companies that survived, battered and bruised by incongruent and incompetent monetary, fiscal and other government policies, had to deal with the long-tail effects caused by them. Inflation, labor shortages and supply chain issues delivered blow-after-blow to the foundation of the economy.
If we want to ensure that the backbone of America is preserved and healthy, it must be a focus.
It needs to be easier to start. It needs to be easier to hire your first employee. It needs to be easier to stay in business. All of this can be accomplished by removing government barriers imposed at all levels on small business owners.
On the labor front, we have too few people in the workforce, particularly for the job openings; about 1.8 jobs available for every worker looking. Allowing small businesses to hire more flexibly, such as expanding the use of contractors or gig workers, and not having additional costs and penalties from bringing on workers would be a great start.
This would allow small businesses to raise wages, helping to bridge the gap that currently exists between inflation and wages. These price increases and flexibility on how work is performed are also key in getting more workers back into the workforce to level the labor market’s supply/demand imbalance.
Removing or lessening other government-imposed barriers, regulations, costs, taxes and more that make it harder for small companies to compete with bigger, better-capitalized entities can also help stave off a recession. With the Federal Reserve tightening their policy in an effort to cool off demand, those who are most vulnerable to these measures are small companies. After the last two years of policy abuse, they need a government cost- and restriction-holiday or else we risk even more of them closing for good.
Not all of these decisions are made at the federal level, but the federal government can certainly do its part and also provide direction for state and local jurisdictions to follow.
Also, many small businesses are domestically focused, and spending with local small businesses supports local economies. American Express’s Small Business Impact study estimated that around 67 cents of every dollar spent with a local small business stays in the local economy. Having a number of small businesses fail at once could wreak havoc on entire communities.
Providing more support to small businesses ensures that we do not erode GDP, consolidate jobs, lessen consumer choice and stifle innovation. It preserves economic freedom and wealth creation opportunities for Americans today and those immigrants who come to America from all over the world to pursue the American Dream.
Big businesses have long had the upper hand. They get special treatment, as well as policies and legislation shaped in their favor. It’s time to tilt the playing field back to support the backbone of America, small business. If we don’t, we will all pay a price.
Carol Roth, a former investment banker & entrepreneur, is author of "The War on Small Business."