Friday, July 03, 2015

How Small Business Comes To Be So Misrepresented

There is one discovery I find especially intriguing when I drill down into surveys of businesses such as Bloomberg’s, which goes deep enough to reveal the sentiments of truly small businesses.

These are the concerns that make up 90% of small businesses nationwide, those that employ 5 or fewer employees including all startups.  Seventy percent are owned and operated by a single person.

Three-quarters, according to other polls, rely on locals for all or most of their business, making them the very backbone of economic development.

These so-called micro businesses, according to Gallup, make up an incredible 80% of all businesses in the United States.  Some calculations go as high as 92% by expanding the definition to include those that employ 10 or fewer employees.

Don’t even ask why the so-called Small Business Administration still defines small businesses in general by metrics as large as 500 employees.

But I have a hunch, that similar to the way official dietary recommendations were originally established, it was originally superimposed by special interests and politicians, not science.

However, these truly small businesses generate 7 of every 10 new jobs.

Fostering and fueling the retention and growth of these micro businesses is the “low-hanging fruit of economic development” overlooked by communities firmly addicted to providing incentives to larger but less fruitful concerns.

A study in 2012 found that micro businesses of 5 or fewer employees directly employed 26 million Americans and indirectly supported another 1.9 million jobs while inducing 13.4 million other jobs.

But these concerns don’t often show up on the radar or in the actions of self-described business advocacy organizations such as chambers of commerce.

Neither do they typically show up in any representative sample during public hearings regarding pending legislation.

While they are claimed as a cause celeb by many along the spectrum of political ideology, the sentiment that tells me these small businesses are not being accurately represented is how they regard government regulations.

In fact, in North Carolina, the political party now in power, often uses this group as an excuse to unravel these public protections.

However surveys such as the one conducted for Bloomberg, show that only 2.2% of these concerns rank complying with government regulations as one of their top problems, making it 10th on the list of concerns among small businesses in North Carolina.

The percentage with this view nationwide is 2.6%.

So what segment of business are Republicans really representing when they seek to undermine public protections in the name of being business friendly?

Well it isn’t large employers in North Carolina where it is a top concern for only 4.7%, making it 7th on their list of concerns and hardly emblematic for what partisan elected officials claim.

Nationwide, the view is held by only 4.3% of large employers, making it 9th on the list.

Taxes aren’t much of a concern either, ranking a top concern among only 7% of small businesses and 4.7% of large employers in North Carolina.

Of far more concern to small businesses are issues such as access to capital where studies show they are largely reliant on small, local banks which are being squeezed out of business by mid-sized and large banks.

Small, community-based financial institutions now have just 24% of overall banking assets and yet they make 60% of all small business loans while giant banks now control 59% of all banking assets and yet make only 23% of small business loans.

The reason is so-called regulation reform and the silence among the elected officials responsible is deafening.  This is in part because of the feed-back loop they helped create.

For instance, while only 2% of small businesses have regulations as an issue, nonetheless for having been caught for years in an echo chamber, this is one of the top two issues that Republicans say will influence their vote.

Just don’t blame small businesses.

So what is really forcing concerns of far less concern to small and large businesses alike, such as taxes and regulations, to the very top of the list for the Republican majority now dominating North Carolina’s three branches of government?

How does an ideology, any ideology, so often find itself so narrow in its representation?

I have witnessed personally, that in some cases, this happens when elected officials come to think it is their opinions they should push rather than those of their constituents.

I have also been privy to how large blocks of elected officials begin to view their constituency more as the special interests that financed their campaigns rather than all voters.

It doesn’t take much to form a vacuum-sealed feedback loop, especially when special interests have lobbyists that seemingly vote their opinions every single day at the state capitol while voters, in general, officially only get to weigh in every few years.

Cities that have taken the lead to require a livable wage aren’t just avoiding these feedback loops, they are fully disaggregating and examining the sentiments of employers rather than just listening to those who pay people to attend meetings.

This is an idea still novel to many officials.  But it is more complicated than that.

An understanding of how an entire political party or ideology can become out of step with business owners and other voters can be found in a paper published by Duke University business and psychology researchers.

It is entitled “Solution Aversion: On the Relation Between Ideology and Motivated Disbelief, and weaves together a series of behavior studies.

“Solution aversion” explains a lot about how organizations such as business advocacy groups and elected officials can become so estranged from the views of their constituents.

It isn’t just because very few constituents have time to attend meetings or the patience to deal with the games played by those who do.

It is because we can all form cherished beliefs and then ideologically align with people who share those same beliefs based on biases rather than information in such a way that we are led to pair solutions and problems, not based on empirical and generalizable information, but on fear.

For anyone caught in an ideology or belief system that seems averse to solutions or trapped in positions where the same old worn out solutions are recycled with the same disappointing results, whether it be in business or politics or religion, this paper is an extremely worthwhile read.

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