Category Archives: Public Policy

Is This A Good Time To Start A Business? (Editorial)

Just when you think no-one really understands job creation, Thomas Friedman got it exactly right in a NYTimes editorial, More (Steve) Jobs, Jobs, Jobs.

As Friedman explained it, “Obama should make the centerpiece of his
presidency mobilizing a million new start-up companies that won’t just
give us temporary highway jobs, but lasting good jobs that keep America
on the cutting edge.”

The history of meaningful, lasting job creation is the history of innovation. Pick any industry — computers, software, civil aviation, automotive — and you will find business innovators at the core of job creation. And, these big new industries invariably started as small businesses.

One key point that Friedman missed, in my opinion, is the need for a focus on facilitating access to capital. The current Administration wants jobs, but at the same time, it wants to restrict “risky lending”. No businesses can grow without capital. No business can grow without investors and lenders who are willing to take reasonable, understandable risks. Banks are not willing to do that today. As a small business owner, I can tell you that banks have the most restrictive lending practices that I have seen in the 31 years that I have owned a business. The answer is not another SBA bureaucracy. The answer is access to capital from investors and banks.

Repeatedly, we hear from Washington that tax incentives for small business will create jobs. That one idea is positive proof that no-one inside the Beltway has ever run a business.

Jobs are created when innovative people see an meaningful opportunity, secure capital (in phases) to build out their businesses, and create innovative products that are in broad demand (ideally worldwide). Then, if all goes well, there will be a taxable business income at some point in the future, often 3-5 years into the future. A tax incentive years into the future is meaningless for job creation.

The option open to the Administration is simple. First, set aside the legislative agenda and focus on jobs. Don’t create another meaningless commission to study the problem. Put Congress to work and:

1. Make innovative new companies the number one national priority.This means celebrating successful business people. Focus on more than just green jobs. Make sure that the effort includes every kind of business from local start-up restaurants to long-time-frame efforts such as lithium ion battery plants. Make sure that the trade policies are in place to facilitate exports. And, help protect intellectual property worldwide.

2. Make access to capital a priority. Make sure that banks can take appropriate risks. Make sure that investors who put money into early stage businesses face reasonable tax rates if and when their investments become runaway successes.

3. Create a supportive regulatory framework that allows small businesses to succeed in the long run.

4. Most important, help the public understand that the Fortune 500 companies are not in a position to create the needed jobs. Unions can’t create jobs. Nor, will government be able to create the jobs we need. The only engine of growth that can create literally millions of jobs is small, innovative businesses.

The Housing Crisis & An Uptick in First-Time Buyers

As the incoming Obama administration weighs the policy options for the economy and the housing crisis, the new team’s economic advisers should study the recently released National Association of Realtors (NAR) survey of home buyers.

– As a percentage of all home buyers, first-time home buyers increased slightly through mid 2008.
– These buyers are younger, made larger down payments and plan to stay in their home much longer than the prior year’s first-time buyers.

Focusing initiatives on first-time buyers might be the single most effective policy option:
1. First-time buyers have much more flexibility because they are not tied to an existing home obligation.
2. Real estate is the ultimate trade up market. By addressing the market at its base, this approach provides a long term benefit to the entire home market – helping to stabilize prices.
3. If we define the current economic crisis as a seriously over-leveraged economy, then this approach can be a small effort to help build equity in single family homes.

The fundamental of this approach is to leverage the market forces that can help. Nurturing first time buyers, who are NOT over-leveraged, could be the right policy at the the right.