Dear Friends,
It seems to me… small businesses are under attack in the US like never before. The first step to starting a small business is higher than ever, the red tape to running a small business is stickier, anyone owning a small business can be required by force of law to violate their religious principles, minimum wage laws limit the utility of new employees, Obama care constrains the size of a small business as well as increases the cost of compliance, and not one of these hindrances to small business is getting better, in fact, they are getting worse. Since small businesses are the font of innovation in any economy, provide the bulk of jobs, create elasticity in the labor market and are the single biggest source of societal wealth, you would think government would try to improve the environment for small businesses, instead of making it all but impossible to start and run one, but government seems intent on wiping small businesses from the economic landscape.
Starting and running a small business is a gamble in the best of times. Even when there was little regulation and low to no taxes starting a small business required a lot of investment in money and time. Sweat equity was one of the ways people could start a small business in the past. Today, with regulations digging a wide moat around the start up process, that calculation becomes ever more risky, and sweat equity becomes impossible. Gamblers will take risks but no sane person will jump into a loose loose scenario.
Small businesses are where innovation starts in an economy. Monopolies may be able to produce a product at a lower price point than a small business, but monopolies never innovate. It is not in the interests of those that run a monopoly to innovate. Change is painful in a giant corporation. Innovation is always done by small businesses… and innovation is the primary driver of economic growth! The Schumpetarian model of economic growth, the creative destruction cycle, is all about innovation. Stop innovation and economic growth stops. Perhaps that is why central banks inflate so many bubbles today, to give the illusion of economic growth, to hide the fact that government policies have ground our actual economic growth to a halt.
Small businesses employ most of the labor force. Chances are you work or have worked for a small business but not so likely you have worked for a giant corporation. Most people work for a small business. One of the reasons is simply because, there are so many small businesses, another is that huge corporations reach a resonant employee equilibrium. A firm grows organically as it’s market share goes up, demand for it’s product rises or both. Once it has reached it’s potential, it stops hiring more people, the unit labor cost per unit becomes less and less, which is the source of efficiency of a large corporation. That is why they can make products cheaper than small businesses.
Under conditions where starting a business is easy, when someone gets laid off or looses their job, they have the option of starting a business to replace it. In doing so, they pull more people into the labor force, to do labor the owner cannot or doesn’t have time to do. This has the effect in an economy of driving up demand for labor. When the system of small business creation is undermined, for whatever reason, the demand for labor goes down and wages follow it. One sure sign of this paradigm at work, is comparing wages across decades and correcting for inflation, real inflation, not the fiction that we are sold about deflation. If real wages are falling, it is a certain sign small businesses are suffering.
To run a small business in the US today you have to give up your religion. More and more the new class elite are forcing small business owners to violate their deeply held religious faiths. Not just small business owners but all business owners. This is the implementation of the newly established State religion of atheism. We all know dozens of examples of this in action. A person of faith has two choices, running a business in violation of your faith, or giving it up and working for someone else. Look at the firestorm over legislation giving people of faith standing in court, to protect their First Amendment Rights against intrusions by government, in Indiana.
The proof is in the pudding so to speak. Small business start ups in the US are negative for the first time in US history. That means more small businesses are going belly up than are being created! As I have been pointing out in this article, small businesses are the source of innovation and thus growth in an economy, they employ most of the labor force, they create elasticity in the labor market by providing an outlet for people if they are laid off, etc… The destruction of small businesses can only lead to lower wages, negative economic growth and a diminishing standard of living. The answer is to eliminate as much regulations as possible, lower taxes, eliminate minimum wage laws and allow small business owners their right of conscience, but the elite would never allow that to happen… so it is what it is.
Sincerely,
John Pepin
