June 9th, 2016
Bloomberg & Buffett Op-Ed: To grow the economy, grow small businesses
The economy has experienced 75 straight months — more than six years — of private sector job growth. Yet some areas still have not recovered all the jobs lost during the recession, and nationally, under-employment exceeds pre-recession levels. How can we increase the speed of job creation?
A critical part of the answer lies with America’s small businesses, which create over 60% of net new private-sector jobs and employ nearly half of America’s workforce. Helping them expand — to get their ideas off the ground — is one of the best ways to support economic growth and needs the continued focus of both elected officials and the private sector.
Political debates on economic growth tend to focus on taxes. But taxes are just one big issue facing small businesses. A report released by Babson College — “The State of Small Business in America” — underscores that fact. It provides a window into small businesses’ most pressing needs, and it can serve as a blueprint for addressing them.
As we’ve seen through Goldman Sachs 10,000 Small Businesses, entrepreneurs across the country are facing barriers to growth. Based on a survey of over 1,800 small businesses, the report pinpoints four major challenges that cut across industries: the need for better access to capital, less burdensome regulations, more qualified workers and ability to better assimilate information technology. Let’s consider each.
Capital. Securing financing remains a major barrier to growth. The net result is that, across all sources, while the median funding request is $100,000, businesses typically secure just $40,500. Small business owners overwhelmingly rely on banks for funding, but banks face more stringent regulatory requirements that have restricted lending and made loans harder to obtain. Closing the gap between what businesses seek and receive would lead to more hiring, investment, and growth. It would also reduce the common practice of credit card borrowing, where high interest rates can lead to financial difficulties. Business owners suggest a reconsideration of terms, loan size and paperwork, and more than one in four call for increased transparency in the borrowing process. Policy discussions around credit access must recognize the need to balance the needs for both regulatory protection and economic growth.
Regulation. Nearly 60% of respondents have difficulty understanding and managing government regulations and laws. Companies spend about 200 hours annually on compliance. Governments should lessen this burden without compromising consumer and environmental protections. Streamlining agencies’ approval processes, for instance, can help small businesses open their doors sooner and expand more rapidly. In addition, simplifying the tax code would be a boon to small businesses, allowing them to spend less time and money on compliance.
Skills. Overwhelmingly, a major hiring challenge was finding employees with the right skillsets — a challenge even greater than salary requirements and competition for candidates. Small businesses are increasingly looking for tech-savvy workers who also have the required licenses and certifications. The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey identifies 5.8 million openings — the second-highest level on record — reflecting a mismatch between company needs and applicants’ skills.
More collaboration between state and local workforce development programs and the private sector can help address this skills gap, and community colleges have an important role to play, too. Programs and curriculum need to align with job needs in growing industries to ensure that graduates leave with the skills necessary to get hired. Some governments have begun subsidizing internships, recognizing there is no substitute for on-the-job training. Cooperative programs among small businesses in each industry can also share in the costs of professional development.
Technology. Small businesses recognize technology as essential to productivity and success. But accessing modern technology is perceived as costly and requires skills that many businesses lack. Better technology is also urgently needed to protect against the increasing threat of cybercrime, which 40% of respondents are not prepared to handle. In fact, one in five have been victims of cybercrimes, part of a disturbing global trend in which businesses are becoming hackers’ preferred target. Given advances in the affordability of technology, technological literacy can be improved through increased access to resources, enhanced training and clearer government cyber-security standards.
Small businesses face other challenges, but progress in these four areas would provide a significant boost to local hiring — and to national economic growth. More than six years into a sluggish recovery, we must do more to help small businesses drive a new generation of growth — and put the next generation of Americans to work.
Lloyd Blankfein is chairman and CEO of Goldman Sachs. Michael Bloomberg, a former New York City mayor, is founder of Bloomberg LP and Bloomberg Philanthropies. Warren Buffett is chairman and CEO of Berkshire Hathaway. Michael E. Porter is a professor at Harvard Business School.
Read the full story here.