All things considered, I like small businesses more than big businesses.
Not because I’m against large companies, per se, but rather because big businesses often use their political influence to seek unearned and undeserved wealth. If you don’t believe me, just look at the big corporations lobbying for bad policies such as the Export-Import Bank, Dodd-Frank, Obamacare, bailouts, and the green-energy scam.
It’s almost as if cronyism is a business model.
By contrast, the only bad policy associated with modest-sized firms is the Small Business Administration. And I suspect the majority of little firms wouldn’t even notice or care if that silly bit of intervention was shut down.
Rather than seeking handouts, small businesses generally are more focused on fighting back against excessive government.
That’s because taxes and red tape can be a death sentence for a mom-and-pop firm. Literally, not just figuratively.
The Daily News reports on the sad closing of popular restaurant in New York City.
For 25 years, China Fun was renowned…the restaurant’s sudden Jan. 3 closing, blamed by management on suffocating government demands. …“The state and municipal governments, with their punishing rules and regulations, seems to believe that we should be their cash machine to pay for all that ails us in society.” …Albert Wu, whose parents Dorothea and Felix owned the eatery, said the endless paperwork and constant regulation that forced the shutdown accumulated over the years. …Wu cited one regulation where the restaurant was required to provide an on-site break room for workers despite its limited space. And he blamed the amount of paperwork now required — an increasingly difficult task for a non-chain businesses. “In a one-restaurant operation like ours, you’re spending more time on paperwork than you are trying to run your business,” he griped. Increases in the minimum wage, health insurance and insurance added to a list of 10 issues provided by Wu. “And I haven’t even gone into the Health Department rules and regulations,” he added. …“For smaller businesses like China Fun, each little thing that occurs makes it harder,” said Malpass. “Each regulation, each tax — you put it all together and it’s just a hostile business environment.”
This is rather unfortunate, but perhaps it is a “teachable moment.”
There are two things that came to mind as I read this story.
- First, at some point a camel’s back is broken by too much straw. Politicians often claim that a particular tax or regulation imposes a very small burden. Perhaps that is true, but when you have dozens of taxes and hundreds of regulations, those various and sundry small burdens become very onerous. I’ve made the point before that you don’t need perfect policy for the economy to function. You just need “breathing room.” Well, China Fun ran out of breathing room. A casualty of big government, though it remains to be seen if anyone learns from this experience.
- Second, complicated taxes and regulations are a much bigger burden for small companies compared to big corporations. Every large firm has teams of lawyers and accountants to deal with tax and regulatory compliance. That’s expensive and inefficient, of course, but such costs nonetheless consume only a very small fraction of total revenue. For small businesses, by contrast, those costs consume an enormous percentage of time, energy, and resources for owners. For all intents and purposes, bad government policy creates a competitive advantage for big firms over small firms.
The moral of the story is that we should have smaller government. Not just lower taxes (and simpler taxes), but also less regulation and red tape.
Not just because such policies are good for overall economic performance, but also because small businesses shouldn’t be disadvantaged.
P.S. Since we’re on the topic of how government tilts the playing field in favor of big companies (at least the corrupt big companies), let’s enjoy some humor on that topic.
Starting with Uncle Sam’s universal bailout application form. And we also have the fancy new vehicle from Government Motors.
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In recent years (as I’ve matured & grown to understand) I’ve been more and more against the excessive taxes imposed on small business. From FICA to FUTA it’s all a way to bring down the entrepreneur as opposed to empowering the business to grow.
One more example of my principle of Selective Toxicity. Recall that selective toxicity is the poisoning of a host with just enough poison that it kills the parasite while the host survives (even if just barely). The big business actually invite this poison on themselves because they know that their organism is large enough to handle it. The small businesses, of course, it kills. So, whether you want to accept it or not, this is one way in which the larger businesses are in cahoots with government regulators. The message being: Please regulate me just enough that it kills off my competition, but does not kill me. Quite effective way of controlling the market. The big business do not like it, but they also recognize it allows only them to own the business line that they serve. And they can eventually adjust pricing to pass the expense on to their client base.
This is all counter to free market rules. It does two bad things- 1. it makes things more expensive due to the added bureaucrats that must be funded. 2. It lessens the number of choices available to consumers. Dan- add this to your database of how many private industry jobs each regulatory job destroys. Just one more statistic.
As the owner of a small business last year I was asked to submit monthly employment data: total hours worked, average salary per hour, number of employees. At the end of the non-calendar year, I was thanked for my “participation” in their survey.
During the survey period, I received an email one week before the report was due and if it was late, I received multiple emails letting me know that I had missed my filing. I got to say, this was the most efficient pain-in-the-ass government agency I had ever dealt with. Each month it took me 20 minutes, so over the year 4 hours. Multiply that by all small businesses involved.
Beyond minor variations, the data changed very little from month to month.
Thank God that was over. BUT, it wasn’t.
One month later, I got a “request” for a monthly spreadsheet that listed each employee’s name, Social Security number, hours worked, pay per hour, and description of job function. I was told that “of course” this information would not be disclosed to others [than why ask for it?], but it was needed to understand the “trends in the marketplace.” I was told that the gathering and submission of this “critical” information should take only between 15 minutes and 2 hours, monthly.
At the very bottom of the letter, they listed the 7 states in which the submission of data was “mandatory”. Massachusetts was not one of them [I’m amazed, since my state is normally at the forefront of bad policy].
I have not responded to their letter and plan not to respond in the future. I await developments.
Add the time it took to write this screed, to the time wasted providing information and even reading their letters.