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Policy Matters: Are You With Us?
a weekly column
The U.S. economy is the world's largest. I bet you knew that.
But did you know that the world's second largest economy is the U.S. small business economy?
Yes, that's right. In 2004, small businesses generated 50.7% of the $10.2 trillion U.S. economy (about $5.2 trillion), putting it ahead of Japan's $3.8 trillion economy.
Which means, among other things, that U.S. policy makers have not one but two world-leading economies to safeguard.
Against a backdrop of multi-billion dollar bailouts of giant multi-national corporations and financial institutions, it's hard to remember that. I have a strong suspicion that those policy makers forget it on a regular basis.
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This week's news briefs
Can SBA Loans Help When Banks Aren't Around?
What happens to small business lending when the banks collectively go into a spasm and traditional financing routes dry up? With the exception of the Microloan program, almost all the lending in the SBA's stable of capital access programs is done by banks. In an economic situation in which small businesses can't get loans, not because their ventures are considered too risky but because the capital markets themselves are in crisis, the SBA's programs are too dependent on banks to help much. If, for some reason, banks simply cannot lend money to small businesses, the 7(a) bag of tricks is almost empty.
The SBA does have a handful of non-bank financial institutions among its approved lenders but that can cause a different set of problems. Non-bank lenders are not subject to the same regulations as banks, regulations covering things like underwriting standards and portfolio management, and sometimes their business models can generate other problems. The SBA has recently published a new set of lender oversight regulations that may help to address some of those problems. One hopes the regulations are effective without being sufficiently burdensome to drive lenders away from the SBA altogether. That is especially true of those non-bank lenders. They provide an important safety net for situations in which banks are unavailable to small businesses.
Where Are The Obama Small Businss Advisors?
The small business natives are getting restless. After almost two years of patiently waiting, the nation's small businesses had their reward (in a manner of speaking) when they become a central focus in the campaign between John McCain and Barack Obama for the world's most over-rated job. Thanks to the fortuitous appearance of Joe the Faux Plumber, both the media and the candidates turned the tail end of the campaign into a fierce battle for the so-called small business vote.
On November 5th, the toe-tapping began. As President-elect Obama trots out a new set of high-profile nominees for his Administration and Cabinet pretty much every week, small business advocates are waiting for some sort of signal that might establish his concern for small businesses as something more than lip service. To a degree, all of this is very unfair, since Obama has not even been sworn in yet. On the other hand, small business advocates have grimly noted that Mr. Obama does not seem to have anyone on his team that either speaks for small businesses or has any experience or knowledge of that part of the economy. So, will he put up or has he shut up? Sources close to the transition tell me we can expect an SBA Administrator nominee to happen before Inauguration Day. Perhaps we'll find out then.
Ferreting Out The Facts About Nonemployers
Data is fairly intractable stuff. You can learn quite a lot from it but, in the end, it only tells you as much as it tells you. That means that a given data set can raise dozens of new questions even as it answers the first dozen questions the researcher asked. Case in point: the monthly employment situation releases from the Bureau of Labor Statistics and the way it counts the self-employed, under-counts the self-employed, and doesn't count them at all - all at the same time. Because of that, there is a growing discrepancy between the number of nonemployer businesses and the "official" number of the self-employed, prompting all sorts of questions that cannot be answered with the data currently available.
The bottom line here is that there are simply too many nonemployer businesses (77% of all U.S. firms back in 2005) and simply too many people involved in starting and running them (29.4 million, roughly 13% of the adult population) to make sense of the notion that they don't matter to the overall economy. At the same time, there are too many unanswered questions about nonemployers for either researchers or policy makers to assess how they matter, what their contributions are and how they fit into the big picture. Clearly, more research is needed. Possibly more to the point, lawmakers need more information about this segment of the economy. It, too, is "too big to fail."
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