Monday, June 13, 2011

Surprise Surprise: No Entrepreneurs and no Jobs

The front page of USA today reported that entrepreneurial activity in America has reached a 20 year low. Yet politicians continue to be baffled with the economy's failure to create jobs. Meanwhile large business profits and productivity are soaring. While big business continues to improve margins by a) sending jobs overseas (employers > 500 employees had a loss of 1M jobs between 2001 and 07, while SMB's added 7M jobs over the same timeframe. All while the economy was decent) and b) favoring investments in capital over labor.

Meanwhile, the bailouts, government takeovers and Stimulus 1 and 2 continue their focus on supporting large businesses, who have a long history of not creating jobs for America. Here's an idea, focus some government stimulus on small and medium businesses. How about enticing entrepreneurs to invest and create jobs. No, refunding a few payroll tax dollars after 12 months is not working and never would work. For pennies the feds could use the SBA programs to entice both the employed and unemployed to exercise their entrepreneurial spirit. For example, the SBA program could be used to help entrepreneurs lower their risk profile in this unusually risky environment. If people are unwilling to buy real estate at 50 cents on the dollar, why would we anticipate they would invest in risky start ups at 100 cents on the dollar. I believe unemployment could be cut within 18 months to under 7% by instituting the following program: for every dollar that an entrepreneur invests in a start up, the sba provides .50 in non lienable loans and .50 in equity investment up to $500k in total investment. Current SBA loans require the entrepreneur to accept a lien on their house (not happening and little equity in real estate anyhow to recover). The equity portion would be payable to the government on liquidation with a liquidity preference but no appreciation. Sounds a lot like what the car makers and banks received.
In this program an entrepreneur would be heavily enticed to invest, since they could double their chances of success. The government would still recover their money from all the successful start ups while not further punishing those who lose their investment further by taking their home. Meanwhile, we would be assured that the stimulus would be heavily spent on job creation because local, small and medium businesses are labor intensive and proven job creators.

Why do I need to break from running my company to figure this out for these baffled politicians? The reality is that SMB's don't get the carrot because they don't pay the piper. They don't typically make big political contributions, hire lobbyists or have the time to woo their local politicians. They are too busy running their companies. Wake up media, politicians and pundits... No start ups No Jobs.

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