Knock down barriers and let small business thrive

The United States thrived in a system of what Joseph Schumpeter called “creative destruction.” Essentially, new forms of production destroy old ones, such as car manufacturing destroying the buggy-making business.

In a free-market economy there is a constant churning, with companies being born, some expanding, some contracting, and others dying every year.

Except for depressions or recessions, we have created more new businesses each year than we destroyed. For the past three decades that business dynamism has declined. Since 2008 we have lost more businesses than we have created. Why?

While it may be that more people want to be environmental or community activists than entrepreneurs, we believe government is a large contributor to the downward spiral.

Independent business people are optimistic risk takers. Here are some of the issues they face.

A U.S. Department of Labor study found that regulations cost a company with fewer than 20 employees more than 36 percent more per employee than companies with 500 employees or more.

Tax compliance costs three times as much per employee for the smaller firm, and environmental regulations cost 4.64 times as much. And yet small businesses provide 90 percent of first-time jobs. Some politicians talk about job creation, and then make it harder for small businesses to create those jobs.

The result of these disproportionate costs is that smaller businesses are being driven out in a number of business sectors. The Wichita Area Builders Association told us that national builders built 25 percent of the new homes in 2008; now they build 50 percent.

Areas subject to heavy regulation, such as home health care and banking, also are seeing the elimination of smaller firms.

To have a dynamic economy we need new companies run by people with new ideas. At the federal level, the energy and dollars go to those with the resources to obtain special treatment.

What can we do to promote a more dynamic economy with more and better paying jobs?

1. Locate local companies that have growth potential, help eliminate barriers to their growth and locate resources to help them grow.

2. Support the Entrepreneurship Task Force led by Gary Oborny.

3. Support Wichita State University president John Bardo’s innovation initiative.

4. Eliminate unnecessary costs and delays in business licensing and construction.

5. Refocus economic development resources and effort on the growth of local businesses, where 98 percent of Wichita area new jobs are created, according to the Brookings Institution.

6. Improve the quality of our education and training, such as the recent funding for high school students to attend community college and technical school.

7. Provide quality infrastructure, including good roads and reliable long-term supplies of good water.

Our slower growth comes from self-inflicted wounds.

We watch national leaders propose programs to benefit this group or this business sector, turning dials like the Wizard of Oz behind a curtain, thinking that he or she will change the economy for the better. It does not work.

The national government created a tax credit program for small businesses to encourage them to provide health insurance to their employees. The media asked us if it would work. We told them some, but probably not many would utilize the program, because small, low-wage companies that could not afford to pay for health insurance would not be persuaded by small tax credits. One year later the Congressional Budget Office studied how many companies had used the tax credits. The number was only 5 percent of what the administration thought it would achieve.

Some politicians misunderstand the role of government, which is an extremely important one. Government’s job is to provide the framework within which we can thrive. It is a big and essential job, but the creation must come from individuals.

We know the way to better jobs and higher incomes. The way forward is not a handout to favored industries. Rather, it is removing barriers to growth for local companies committed to staying in our region and encouraging those companies by actively inquiring of their needs and aspirations.

We can be optimistic and promote growth if we do the right things as a community. If 1 percent growth is unacceptable, we have it in our power to increase our growth by changing our focus and encouraging our own entrepreneurs.

This story was originally published February 17, 2015 at 8:39 PM with the headline "Knock down barriers and let small business thrive."