Herein lies the challenge: Small businesses, half of the private sector (and the most important part as far as jobs are concerned), have been heavily impacted by this credit crisis. Small businesses created 64% of new jobs over the past 15 years, but they have cut five million jobs since the onset of this credit crisis. Large businesses, by comparison, have shed three million jobs in the past two years.
Small businesses continue to struggle to gain access to credit and cannot hire in this environment. Thus, the full weight of job creation falls upon large businesses. It would take large businesses rehiring 100% of the three million workers laid off over the past two years to make a substantial change in jobless numbers. Given the productivity gains enjoyed recently, it is improbable that anything near this will occur.
Unless real focus is afforded to re-engaging small businesses in this country, we will have a tragic and dangerous unemployment level for an extended period of time. Small businesses fund themselves exactly the way consumers do, with credit cards and home equity lines. Over the past two years, more than $1.5 trillion in credit-card lines have been cut, and those cuts are increasing by the day….
As a small businessman running my own gigs for most of the last 30 years I’m not sure this is a bad development. Please note, I did not say “easy.”
There have been a lot of small businesses — micro-businesses, really — pop up as a direct consequence of excess debt and overly easy credit. Many, if not all, were not viable, like the average hot-house plant that collapses immediately upon having to deal with a much harsher outdoor environment.
Easy credit almost always leads to clusters of malinvestment and misallocations of capital. This current period of “hardening off” will ultimately be good for America.
Right now it is being felt in businesses. Within five to ten years it will be felt by nearly those accustomed to government-provided largesse, as it is becoming obvious that the welfare-entitlement economy prevailing since the 1930s is gradually collapsing as it encounters the mathematical impossibilities of continuance.
We small business people will eventually lead the way out, because we will have been winnowed and toughened by the scarcity of easy money currently deepening … and far from over.