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What's holding small business back?

singlebiggestproblem.jpg

A lot of people talk about why businesses aren't investing, but the National Federation of Independent Business actually asked them (pdf):

Many policymakers misidentify the fundamental bases of small-business problems, leading to promotion of faulty policy. The principal immediate economic problem for 51 percent of small employers remains slow or declining sales, six percentage points more citing the problem than one year ago. Uncertainty was identified by over one-fifth (22%) as theirs, followed by access to credit (8%) and falling real estate values (8%), virtually the same as last year. Even among owners who report they cannot get credit, twice as many cite poor sales as cite credit access.

By Ezra Klein  |  August 3, 2010; 3:29 PM ET
 
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Comments

Good stuff Ezra. Wonder how this compares to previous recessions and small businesses' feelings then?

Oh and I wonder what drives declining sales? Maybe consumers are afraid to purchase? At some point someone has to blink. I'm betting its come the end of the 1st week of November that the blinking starts.

Did you hear the report that personal savings was up again when its almost never up in this country?

Posted by: visionbrkr | August 3, 2010 3:52 PM | Report abuse

On a micro level, what can federal policymakers do about lagging sales for small business? Give consumer rebates for purchases made from a small business? Administrative nightmare.

They do what they can to mitigate small business tax burden through tax incentives for business owners and the drying up of credit from the non-bank financial institutions by expanding SBA programs. But generally, what the federal government does to help the economy helps big business as well as small business.

That big businesses which are going gangbusters are typically global businesses often gets lost in the dicussion. They rack up sales in regions with economic growth (like China) and buy labor from low cost markets (like China) to maximize their profits. Smaller businesses don't have the same kind of economic flexibility or bargaining power.

The NFIB survey uncertainty stat you cited isn't on the (black and white?) graph. It would be interesting to see how closely it tracked with the business cycle. Making permanent the Bush tax cuts under $250k would remove some of that uncertainty. Fix the estate tax. As long as the rules are known, businesspeople adapt.

OT: the personal savings rate usually blips up during times of uncertainty.

Posted by: tuber | August 3, 2010 4:21 PM | Report abuse

Low sales are due to a lack of money on the part of a great many would-be consumers, and this is the direct result of stagnant incomes and overindebtedness which too many people used to make up for stagnant incomes. As businesses replace permanent workers with temps and independent contractors, all without benefits or job protections, I don't see things getting much better.

Businesses seem to think they can sell to each other and to Asia and Latin America, but at some point if there isn't enough end demand here at home, we won't be able to support the government that keeps order here and abroad, educates our people and maintains a healthy public and environment etc, and it's all over for business as well.

Posted by: Mimikatz | August 3, 2010 4:29 PM | Report abuse

Just in case I ever look back at this thread and am too lazy to re-read the cited paper, here are some quotes from the NFIB study:

"Small business owner responses make it clear that the Administration and Congress never understood and still do not understand Main Street’s problem. The problem is sales and to a lesser extent uncertainty."

"Having spent hundreds of billions already with little visible effect, the policy dilemma now is whether to stimulate sales and further undermine confidence, or to reestablish confidence and let it build into sales."

"In the interim, the consequences of the earlier failure to recognize the small business problem and address it wisely are a rapidly diverging economy with large firms recovering and small firms not."

"Still, it remains highly curious that small employer customers of very large banks appear to have considerably less access to credit than small employer customers of the rest. There is no evidence these two sets of customers differ. [...] If access among the two were similar, at the higher level, considerably more funds would have flowed to small businesses over the year and their problems would have been much less."

Posted by: rmgregory | August 3, 2010 4:29 PM | Report abuse

Why do the graph and the paragraph below it measure different reasons (and show different numbers)?

Posted by: tomtildrum | August 3, 2010 4:56 PM | Report abuse

"'If access among the two were similar, at the higher level, considerably more funds would have flowed to small businesses over the year and their problems would have been much less.'"

Time to change banks?

Posted by: tuber | August 3, 2010 5:07 PM | Report abuse

"Oh and I wonder what drives declining sales? Maybe consumers are afraid to purchase?"

You people have never even *heard* of Occam's Razor, have you? Here, let me help: http://en.wikipedia.org/wiki/Occam%27s_razor

Posted by: slag | August 3, 2010 5:27 PM | Report abuse

It's really hard to tell which line is which, was the original in color and rendered in grayscale? This graph could be a lot clearer.

Posted by: catherine3 | August 3, 2010 5:40 PM | Report abuse

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