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A recent report released by Goldman Sachs, “The two-speed economy,” provides alarming data on the ability of small businesses to assume their traditional role in the economic recovery by creating jobs and growing economic prosperity.
“Small firms, in contrast, have suffered low rates of business formation and tepid employment growth. Employees of small firms have also seen significantly weaker wage growth than employees of large firms have enjoyed.”
The report points out that we are missing an estimated 600,000 small firms and the related jobs they would have created as compared to past economic rebounds. This could have been a game-changer in our recovery and could have provided much needed opportunities for our struggling middle class.
“Perhaps the simplest and most economically significant demonstration of the challenges facing smaller firms is that the number of these businesses actually declined over the five years from the start of the crisis – the only such decline since the data became available in the late 1970s. The result is an estimated 600,000 ‘missing’ small firms, and six million jobs associated with these firms, as of 2012.”
What is particularly disturbing is that the report indicates a decline in the willingness of individuals to take the plunge and start a business as a sole-proprietor — the most prolific and easiest form of small business entity. Starting a sole-proprietorship has historically been the avenue by which talented people turned for opportunity after being laid off or underemployed due to economic downturns.
“Given the severity of the recent recession, growth in this category should have been strong – but here too the data show that the recovery has been notably weak.”
While it is difficult to determine one definitive reason that explains the data laid out in the report, the evidence is overwhelming and underpins what the Chamber has repeatedly relayed to regulators and lawmakers concerning the direct and indirect impact of the avalanche of regulations imposed on our nation's small businesses. The proliferation of rules and guidance from a myriad federal regulatory agencies affecting every aspect of a business’s operation including health care, unions, the environment and financial services have had a chilling effect on business formation and job creation as it relates to small businesses — the entities least able to cope with the resulting burdens of compliance and implementation.
When it comes to the financial services sector, regulations have had an even more devastating impact on small business. While regulators may have been well-intended in their zealous campaign to reduce risk in the system, it has resulted in a substantial reduction in the funding for those small businesses eager to take a risk and grow the economy — the heart of free enterprise system.
Can you imagine going to the playoffs and having your star athletes sitting on the bench? The Goldman report shows with the onslaught of regulations since the downturn did just that – sidelined small businesses when we needed them most.