After 30 years of supply side hoaxterism, and a steady drum-beat of support for economic policies which serve the interests of large corporations, literally at the expense of small business and working Americans — a venture capitalist says it:
” I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate. ” [Hanauer]
Conservatives have tried, and largely succeeded, to tell the American public that in spite of hard evidence to the contrary The Stimulus Failed. They’ve tried, and largely succeeded in convincing the minimally or only ideologically informed that no spending programs will produce permanent economically successful results. What they’ve failed to grasp, and what is so succinctly stated by Hanauer is that NO business or enterprise is permanent.
A lack of demand is associated with several of the common factors for small business failure.* Small businesses don’t fail because of “government regulations,” or because of “the Bank;” they fail because their numbers don’t add up. The number one reason for small business failure: “There is not enough demand for the product or service at a price that will produce a profit for the company.” [NYT] This covers a host of other issues: Did the start-up try to compete with a company that can operate with economies of scale? Did the business open up in a declining market? Did the business over-expand?
Even a cursory review of the typical lists of reasons for start-up and small business failure will yield evidence that the owner failed to initially understand demand levels, failed to physically locate in areas of high demand, or became overly optimistic about the overall level of demand and over-expanded the operations. Failure to do proper budgeting and accounting within the firm means that there was no accurate way to determine if the demand was sufficient to keep the company floating above the profit line. These elements return us to the starting point: The business failed because there wasn’t enough demand to produce a profit for the company.
Missing The Point
Conservatives speak as though every job created in the private sector is “real” or “permanent,” when the uncomfortable FACT is:
“Seven out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more. Census data report that 69 percent of new employer establishments born to new firms in 2000 survived at least 2 years, and 51 percent survived 5 or more years.” [SBA] (pdf)
The Tax Relief Coalition (read: US Chamber of Commerce, NFIB, National Association of Manufacturers, National Association of Wholesalers & Distributors, Associated General Contractors, and International Foodservice Distributors Association) opposed the American Jobs Act because:
“America’s job creators… are critical to the effort to rebuild our economy and create the jobs necessary to put our unemployed back to work. Unfortunately, the Senate is expected to take up yet another bill that, if enacted, would seriously impair our ability to accomplish that goal.” (Tax Relief Coalition, Letter To Congress, 11/30/11) [Republicans] (emphasis in original)
The serious impairment? A 0.5% tax on top level incomes, which the Republicans in the Senate deemed “punitive.” Senate Republicans sustained their filibuster of S. 1917, the Middle Class Tax Cut Act, extending the payroll tax reductions for working Americans on December 1, 2011. [roll call 219] The bill contained a tax surcharge on millionaires and billionaires, the “job creators” our venture capitalist cited as not creating any jobs. Only 20 Senators could be found to support Senator Dean Heller’s unfortunate “hit everyone but the millionaires and billionaires” proposal, S. 1931 to extend the tax cuts. [roll call 220]
As long as conservatives continue to oppose any measures which would increase demand (i.e. put money in the pockets of those most likely to spend it), and so long as they continue to put the interests of the upper 1% before the interests of the remaining 99%, the economy will be variously described as “moderate,” or “sluggish,” or “slow.” [FED Beige Book]
Small businesses are, indeed, crucial to the American economy:
• Represent 99.7 percent of all employer firms.
• Employ about half of all private sector employees.
• Pay 43 percent of total U.S. private payroll.
• Have generated 65 percent of net new jobs over the past 17 years.
• Create more than half of the nonfarm private GDP.
• Hire 43 percent of high tech workers (scientists, engineers, computer programmers, and others).” [SBA]
However, 30% of the new starts will be gone in two years, 50% will be gone in five years, and only 25% will be around for fifteen years or more. Those left by the wayside will not have found “enough demand for the product or service at a price that will produce a profit for the company.”
Notes and references: * Jay Goltz, “Top Ten Reasons Small Businesses Fail,” NYT, January 5, 2011. Robert Longley, “SBA: Why Small Businesses Fail,” USGinfo. Patricia Shaefer, “Why Small Businesses Fail: Top Seven Reasons,” BusKnowHow. Melinda Emerson, “Reasons Businesses Fail: 5 Reasons why,” Small Business Trends, April 5, 2010.