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Policy Matters: Like A Raisin In The Sun
a weekly column
I have heard from various quarters recently that one important, stimulative thing the government should do is to adjust the tax code so that investors can be persuaded to back small businesses.
The idea that the government has to do so represents a failure of the venture capital industry, as eloquently described by Umair Haque, director of the Havas Media Lab:
Imitation - not innovation - is woven into the fabric of the 20th century venture economy. Why are venture investors failing to seed new industries and markets? Because venture funds invest not just in all the wrong places, ignoring clear supply and demand signals - but, worse, in all the wrong and same places. Where one pioneer invests, a slew of imitators follow, and so tremendous amounts of cash are poured into the same business design or market space - ad exchanges, social networks, and blogging/vlogging platforms to name just a few recent fads. That striking homogeneity reflects an almost total lack of strategic imagination by venture players.
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This week's news briefs
Recovery Bill Thin on Micro Policy Goodies
Over the next two weeks, the House will be considering the broad, sweeping economic recovery legislation we've all been hearing about since Election Day, and several House Committees have released details of the parts of the proposal that fall under their jurisdiction last week. From those slightly more detailed descriptions, it would appear that there is very little in it that will be of direct benefit to microbusinesses.
The only tax proposal in the package that may directly impact most microbusinesses is the "Making Work Pay" tax credit, which will be available to the self-employed. There are the standard provisions, such as proposals to increase expensing and bonus depreciation that may help some but not most. There is more than $550 billion in infrastructure spending that may offer opportunity to microbusinesses in the construction sector. Interestingly, many microbusiness owners expect 2009 to be a very good year and are not looking to the government to create opportunities for them. They are used to being ignored by policy makers. They are used to creating their own opportunities.
No Recommendations for Micros in Stimulus Hearing
The House Committee on Small Business kicked off the 111th Congress with a hearing last week -- although, technically, it wasn't really a hearing because, technically, the membership of the Committee has not yet been finalized -- on small business, the current recession and upcoming economic stimulus legislation.
A couple of themes emerged from witness testimony, like how small businesses don't like the bailout because it didn't work to unfreeze capital like it was supposed to and how small firms are tired of the federal government continuously throwing money at large businesses when small ones provide a better bang for the buck. But one thing that wasn't heard was anything at all about microbusinesses. Chairwoman Nydia Velázquez said at the end of the hearing that she wants small business to have a seat at the table, but the absence of microbusiness interests from the table demonstrates that, so far, some things haven't changed a bit.
Microbusiness Population Growth Slows in 2006
The pace of growth in the population of U.S. businesses slowed significantly in 2006, according to new firm size data released by the SBA Office of Advocacy last week. After growing by approximately 4% in 2004 and 2005, the number of U.S. businesses increased by only 1.6% in 2006. And it appears from the data, that microbusiness employers in particular were already hurting, even though the recession was almost two years away -- making them the proverbial canary in the coal mine of a looming economic downturn.
As reported back in August, nonemployers increased their numbers by 1.8% in 2006 in an unexpected and somewhat stunning reversal of what had been average annual increases in population of 4.5% from 2002 through 2005. Microbusiness employers with fewer than five employees actually decreased slightly (down 0.2%) in number, while employers with between five and nine employees increased by only 1%. Meanwhile, non-micro small businesses with between 10 and 499 employees grew by 2.8% and large firms (more than 500 employees) increased in number by 3.4%.
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