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U.S. Small Business Is In Great Shape

by rifek Sun Feb 20th, 2011 at 03:59:22 PM EST

Cross-posted from my blog.

Just ask the Wall Street Journal and the Chamber of Commerce.  According to an article this week in the Journal, business bankruptcies are down, so things must be improving for small businesses.  The Chamber of Commerce chimes in with this line, with the C of C VP for small business offering the usual pap about small businesses being better positioned to recover than the big boys because they are more nimble.


First, let me say that anyone who uses the word "nimble" in a business context should be punched in the face, preferably by someone wearing a chain mail glove.  It is a noxious, marketing buzzword from Dot Com Daze, when investors deliberately checked their brains at the door so they could avoid noticing the hucksters were making their sales pitch with a shovel.  I was there, I remember.  There was a poster that consisted of a picture of a blow dryer, an arrow pointing at the ON switch, and the caption, "Press here for marketing presentation."  Unless you're talking about cutting horses and herding dogs, there is no place for "nimble."

The Journal and the C of C can allege all they want that the bankruptcy drop shows a small business recovery.  I would submit it shows something else: Small businesses are finding some financing.  Oh, not enough to make a difference.  Not enough to restructure, right the ship, and set a new course.  No, money like that is reserved for the big boys.  The C of C conveniently ignores that, if you own the game, you don't need "nimble."  If a small business owner tries to raise meaningful capital, he inevitably violates a securities law, and the federal and state regulators swoop down, shut him down, take everything, and still make him do the perp walk.  That's what they spend 99% of their time doing.  Meanwhile, the big boys can raise billions through outright fraud, squander it through more outright fraud, and get no more than a slap on the wrist (I'll blog about the Friday night dismissal of all charges against Angelo Mozilo later.).  So no, folks, I do not believe prosperity is just around the corner in small business world.  Quite the contrary.

What I do see is small businesses getting just enough financing or payment deferrals to play kick-the-can.  The business owners who are coming to me are no longer talking about recovering, turning things around, or riding out the downturn.  They're talking about "surviving until."  Until the last kid graduates next year so they can permanently downsize.  Until they qualify for Medicare and Social Security in two or three years.  Until the paperwork on their visas goes through and they can dump what's left of their lives and move away (Yes, it's gotten to that point.).  They're at the ends of their tethers, and they're hoping to kick that can far enough down the road to salvage something, for their kids if not for themselves.

They know bankruptcy can't help them.  Another inconvenient truth the C of C isn't letting on is that Lloyd Blankfein doesn't have to personally guarantee GoldSacks' loans; small business owners have to personally guarantee everything.  It doesn't do any good to put the business in bankruptcy; the creditors will go after them personally.  If they file personally, the business is cooked anyway, and it's over.  It's hard to be "nimble" when the bank has sunk your feet in a tub of concrete.

So they try to stretch it out.  Until.  That's the state of the American Dream.

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LTEs expressing the personal impacts current US financial policies, such as you describe, by small business owners would be useful in de-legitimizing the popular perception of these policies. Small business owners may have been in the habit of siding with big business on political issues out of aspirational beliefs. I doubt that lots of them can now realistically aspire to the status of an oligarch, as they are concerned about bankruptcy. They need to reflect on how their feet came to be encased in concrete and by whom.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 21st, 2011 at 12:14:32 PM EST
You know, I think it's past that point.
Living outside the US helps one to see the changes.
Ivonne went back to the US on business, and traveled through two states, Florida and Georgia, and Washington, D.C.
The thing that struck her most was the sweeping erasure of small business. In Orlando, in St. Petersburg, whole strip malls have simply been erased, their markets and customers apparently absorbed by the huge cut-raters.
In the food business, the wipeout among the small guys is well advanced- it's franchise food, or fix-your-own.
Interestingly, it's the ethnic food sellers who continue to eke out a living.
Not the ilk of Taco Belle. Real Mexican beaneries, Chinese or Thi seem to survive.
I think the loyalty of patrons is connected to a person or a family, and not to a brand there. How nice.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Feb 23rd, 2011 at 11:01:19 PM EST
[ Parent ]
The ethnic food sellers ten to operate in the margins and cracks where the big boys can't or won't go: marginal neighborhoods, sidewalk carts, greymarket operations.  It's always been that way, but it's become more noticeable as the bigs have crushed everyone else and the ethnics have become "the last man standing".
by rifek on Wed Feb 23rd, 2011 at 11:43:04 PM EST
[ Parent ]
The other strong-hold of small businesses is construction related contracting and tradesmen. They also have taken a huge hit. It is traditional that during recessions dominant capital, the big boys, consolidate their position by buying or putting out of business smaller competition. During booms they expand their breadth of operation. During recessions or depressions they consolidate their depth.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 23rd, 2011 at 11:56:21 PM EST
[ Parent ]
The small, construction contractor will not be coming back.  We have decided to destroy the publicly backed secondary market for mortgages, which made it possible for common people to own homes and frankly made the U.S. working class into part of the middle class, and so we are destroying the market for single family residences, which was what made small contractors possible.  We are abandoning an ownership society and exchanging it for an owned society.
by rifek on Thu Feb 24th, 2011 at 12:09:28 AM EST
[ Parent ]
A point of order: What is destroying the American middle class is that the income it used to use to buy stuff - including homes - isn't there any more. Give it back a reasonable income, and it will be able to obtain financing, with or without a secondary market for mortgages. That's the nice thing about having a central bank: It removes the loanable funds constraint, making the credit market a completely demand-side beast.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 24th, 2011 at 02:19:01 AM EST
[ Parent ]
Worse, that income was turned into un-payable debt. Until that is resolved, nothing will recover.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Feb 24th, 2011 at 09:43:35 AM EST
[ Parent ]
Quite, that debt has to be restructured in the old fashioned way, through bankruptcy, to remove the private debt service burden which is bogging down the economy.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Feb 27th, 2011 at 12:52:07 PM EST
[ Parent ]
We've dismantled the infrastructure for providing a reasonable income to a middle class of any size.
by rifek on Sat Feb 26th, 2011 at 11:20:54 AM EST
[ Parent ]
... demand side solution. There is, however, ample policy opportunities to do so in the actions that Big Oil has forbidden over the past three decades.

If a fight is necessary, better it be a simple fight, and Big Oil versus The Survival of the Middle Class is both accurate in depth and sufficiently simplifiable.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Feb 27th, 2011 at 12:51:08 PM EST
[ Parent ]
It's a very similar situation here. I'm tempted by a small business idea (running a micropub) but in the current business environment I just don't think it's the sane way forward

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Wed Feb 23rd, 2011 at 11:07:48 AM EST
How about a nanopub then?  Start small.
by njh on Wed Feb 23rd, 2011 at 05:54:28 PM EST
[ Parent ]
Something along these line?

Don't know whether the pubkeeper would be inside the nanopub or the customer.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Feb 23rd, 2011 at 08:43:40 PM EST
[ Parent ]
I don't want to be inside the customer.

anyway, real ale needs to settle for a few days before serving, not compatible with being biked all over the place

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Thu Feb 24th, 2011 at 02:31:05 PM EST
[ Parent ]
... a substantial quantity of real ale, I'd want to rest a couple of days myself. Sunday cycle in, Monday cycle out, Tuesday, Wednesday and Thursday, the real ale settles, Friday and Saturday the nanopub is open.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Feb 24th, 2011 at 04:07:56 PM EST
[ Parent ]
SBA gets new focus on red tape, finance and taxes | EurActiv
The European Commission today (23 February) published its long-awaited review of the Small Business Act, promising to do better to cut red tape, improve access to financing and try to harmonise tax systems among EU member countries.

In sharpening its priorities to help small and medium-sized businesses (SMEs), the Commission committed itself to 29 recommendations to focus the impact of the two-year-old act.

"The whole thrust is simplification. That's something close to the heart of SMEs," said Antonio Tajani, EU commissioner in charge of enterprise and industry.

Small and medium-sized enterprises (SMEs) - those with 250 or fewer employees - have been hammered by the recession and the credit crunch, and their recovery is pivotal for Europe. These SMEs employ more than two thirds of the labour force in Europe and are the prime growth engine for the economy.

The Small Business Act has 10 guiding principles, including improving access to finance, drawing up bankruptcy rules to give entrepreneurs a second chance and upgrading skills.

An article on small and middling businesses in the EU.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Feb 23rd, 2011 at 02:46:13 PM EST
These SMEs [...] are the prime growth engine for the economy.

This is frequently asserted, based on the fact that small business growth is correlated with overall growth. It is not, as far as I am aware, based on any deeper understanding of whether small businesses drive growth, or merely react to growth created by other economic actors. When looking at the mechanics of production, it is easier to believe the latter than the former.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 23rd, 2011 at 03:50:38 PM EST
[ Parent ]
I don't really care whether small businesses are the engines of growth because I agree with Edward Abbey that unlimited growth is the philosophy of the cancer cell.  I prefer small businesses and small farms for reasons other than growth.  First, they provide more autonomous opportunities to more people than the large industry models.  Second, they bring control and production as close to one another as possible, and typically in the same hands.  Third, they place control and production on a human level (individual/family/community) instead of on a corporate level.  Fourth, they decentralize the system and make people harder to control.  I saw an interesting article in the Kiev Post a few days ago in which a Ukrainian economist talked about authoritarians preferring centralized, industrial work over small businesses for that exact reason.
by rifek on Wed Feb 23rd, 2011 at 11:36:06 PM EST
[ Parent ]
I have often wondered how the number of independent or autonomous economic actors in an economy could be defined and categorized as I have suspected that their relative number says something significant about a society. Economic autonomy, tentatively defined as having a broad enough customer base that the loss of any one or two customers would not put you out of business, inherently has political dimensions.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Feb 24th, 2011 at 12:03:06 AM EST
[ Parent ]
We're on the same page.  I am of the unswerving opinion that you have the rights you can defend, and unless there is systemic collapse, that defense is fundamentally economic.  Without economic autonomy, your rights are reduced to those given by noblesse oblige.
by rifek on Thu Feb 24th, 2011 at 12:21:52 AM EST
[ Parent ]
I think this analysis mistakes cause and effect.

Small businesses have very little power. Their suppliers are mostly large businesses, their customers can easily go elsewhere, their financial situation is perilous compared to that of a large business. The list goes on. This is why they are the first to go out of business during a downturn. I would propose that what you are observing is that small business has an easier time thriving in a society where power is decentralised and economic policy is designed to favour the common citizen, than in a society run by, of and for incumbent insiders.

And as a tool for defending society from insider predation, small businesses and freeholders have historically proven greatly inferior to the mass organisation of labour that becomes possible within the large industrial firm.

Small firms may be desirable on other grounds, of course. As you note, it is possible to prefer small business for their tradition of craftsmanship, or similar aesthetics. I happen to disagree - I rather like the industrial aesthetic - but that is a matter of society's taste and custom, so this is an area in which reasonable people can disagree.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 24th, 2011 at 08:07:09 AM EST
[ Parent ]
Determining cause and effect can be problematic, but it seems several of us agree on the dynamic. Large scale coordination of the overall economy is essential. Accomplishing this by an oligopoly of monopolies is probably the lowest energy option, which thus forms a well into which societies tend to fall. Then the oligarchs can point to the necessity of the coordination which they are providing as justification, all while directing their employees and propagandizing others to keep the walls as steep and as high as possible.

The essential challenge to creating more humane alternatives is that of designing and then implementing a means of governance that is far less responsive to the economic inducements of the powerful. So far most of what the last three hundred years has demonstrated is that republics tend to oligarchies, as Montesquieu noted.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Feb 24th, 2011 at 09:41:10 AM EST
[ Parent ]
A collection of oligopolies or monopolies or both might only appear to be the low energy position ~ the position to engage in barrier to entry maintenance for a monopolist and in arms-race type rivalry games for an oligopolist can easily consume any hypothetical energy savings.

IOW, there's no reason to believe that its a thermodynamic equilibrium, when its just as easily a far from thermodynamic equilibrium state that happens to be a power bloc equilibrium

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Feb 24th, 2011 at 04:12:12 PM EST
[ Parent ]
However, oligopolies and monopolies have the advantage that the infrastructure of economic planning already exists in the regular operations of the business firm. So when an overriding social imperative requires government planning, the government only has to co-opt the existing planning systems, not make up new ones out of whole cloth.

The downside is that firms that are capable of planning and regulating economic activity on a large scale in the normal conduct of their business might instead decide to co-opt the government...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Feb 24th, 2011 at 06:21:25 PM EST
[ Parent ]
That's an advantage if you expect that corporate planning infrastructure will tend to pursue goals that are more or less in the general public interest. If the corporate planning infrastructure will tend to pursue goals that are more or less antithetical to the public interest, than the existence of that planning infrastructure requires more countervailing planning infrastructure than if it did not exist.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Feb 24th, 2011 at 09:41:19 PM EST
[ Parent ]
There is also the possibility that the private planning system will pursue interests that are orthogonal to the public interest, rather than directly aligned or opposed to it. All it requires for them to be a net benefit is that, on average, they do not work directly against the public interest.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 25th, 2011 at 05:42:59 AM EST
[ Parent ]
That would also be nice, but given the effectiveness of the commercial corporate sector as an externalizing machine, equally counterfactual.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Feb 25th, 2011 at 06:36:12 AM EST
[ Parent ]
Similar here in Australia. Small and middle size businesses are straggling and we are talking Australia where (so they say) economy is still in great shape...
But...I can see "for lease / sale" signs all over the place (not that much in Sydney and Melbourne but still...) and I have a quite a few friends owners of small business and they are really struggling and are trying to survive "until"...everything is back to prosperity (if ever) or until they reach pension time or...
My daughter has a small business and all tho she is doing OK things are pretty quiet. I do not know if people can get finance but there is no logic to put yourself deeper in the debt while business is going down and you have fewer customers and work... As for big guns we can all see (on TV) that they are doing great...


Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Wed Feb 23rd, 2011 at 07:02:32 PM EST
The level of misery represented today by the strategy "survive Until--" cannot be stated; It must be felt.
A good idea in more affluent times becomes, after a huge amount of work, a marginal endeavor in the post-bubble world, which devolves into a desperate struggle in the face of fading hope, when the hard reality of the "New Normal" sinks in.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Wed Feb 23rd, 2011 at 10:46:42 PM EST
My grandfather, who successfully ran a farm through the Great Depression, used to tell me during the trouble times of the late 70s and early 80s that he thought we heading into another one except that it would be worse.  He would say that back then at least most people could feed themselves.  People lived on farms, or lived in towns and had relatives on farms, or at least had gardens and a chicken coop.  Even in cities, there were public gardens and chicken coops out back.  By 30 years ago, that was all gone.  People had been cut off from the tools they needed to feed themselves, and if you'd dropped them into a garden plot, few would have known what to do.  If things got bad, people could no longer feed themselves, and that scared my grandfather.  He was glad he wouldn't live to see it.

It's only gotten worse since then.  Revolutions grow from bread riots, but they're the kinds of revolutions that lead to Terrors.

by rifek on Wed Feb 23rd, 2011 at 11:58:23 PM EST
[ Parent ]


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