Why Small Business Is Not Hiring (good read)

[rushmc 23]

Posted today in bloomberg.com


Carter: Economic Stagnation Explained, at 30,000 Feet


By Stephen L. Carter May 26, 2011 2:23 PM CT 44 Stephen L. Carter is a professor of law at Yale, where he teaches courses on contracts, professional responsibility, ethics in literature, intellectual property and the law and ethics of war.
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The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward. Demand for his product is up. But he still won’t hire.

“Why not?”

“Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?”

He’s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost.

It’s a little odd to be having this conversation as the news media keep insisting that private employment is picking up. But as economists have pointed out to all who will listen, the only real change is that the rate of layoffs has slowed. Fewer than one of six small businesses added jobs last year, and not many more expect to do so this year. The private sector is creating no more new jobs than it was a year ago; the man in the aisle seat is trying to tell me why.

He is trim and white-haired and bursting with energy. He’s proud of the business he has built: not large by the way things are measured these days, but certainly successful. He shows me sales figures, award citations, stories from trade magazines. I congratulate him, then turn to the window and enjoy the view for a bit. We are flying over the Midwest, away from the setting sun and toward the darkness. America stretches beneath us in every direction, flat and broad and beautiful. My seat-mate has just discovered that I am a law professor: That is the reason for his discourse.

Party Doesn’t Matter
“I don’t understand why Washington does this to us," he resumes. By "us," he means people who run businesses of less- than-Fortune-500 size. He tells me that it doesn’t much matter which party is in office. Every change of power means a whole new set of rules to which he and those like him must respond. ‘‘I don’t understand,” he continues, “why Washington won’t just get out of our way and let us hire.”

There are a lot of responses I could offer at this point. But I am interested now; I prefer to let him talk.

It isn’t just hiring that is too unpredictable, he says. He feels the same way about investing. He has never liked stock markets; he prefers to put cash directly into businesses he likes in return for a small stake, acting, in short, as a small- time venture capitalist.

“Can’t do that now,” he says. For people like him -- people who aren’t filthy rich -- it has become too hard to pick winners. But he doesn’t blame the great information advantages enjoyed by insiders. He blames Washington, once more, for creating a climate of uncertainty.

Why Not Sell?

Growing bold -- or maybe rude -- I ask why, if the climate is so terrible, he doesn’t just sell his company. This brings a smile.

“I think about retirement a lot,” he says. “But I can’t.” I wait to hear about how much he loves the business he founded, or about his responsibilities to his employees, or perhaps to the town, somewhere in the Dakotas, where his factory is located. Instead, he tells me that it’s impossible to make a sensible decision about winding down his firm when he doesn’t even know from one year to the next what the capital gains rate is going to be.

I argue a bit. Surely government isn’t all bad. It protects property, the environment, civil rights …

No "Installed Base"
My seat-mate seems to think that I’m missing the point. He’s not anti-government. He’s not anti-regulation. He just needs to know as he makes his plans that the rules aren’t going to change radically. Big businesses don’t face the same problem, he says. They have lots of customers to spread costs over. They have “installed base.”

For medium-sized firms like his, however, there is little wiggle room to absorb the costs of regulatory change. Because he possesses neither lobbyists nor clout, he says, Washington doesn’t care whether he hires more workers or closes up shop.

We will be landing shortly in Minneapolis. I ask him what, precisely, he thinks is the proper role of government as it relates to business.

“Invisible,” he says. “I know there are things the government has to do. But they need to find a way to do them without people like me having to bump into a new regulation every time we turn a corner.” He reflects for a moment, then finds the analogy he seeks. “Government should act like my assistant, not my boss.”

We are at the gate. We exchange business cards.

On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same. We rarely encounter the simple human face of the less- than-giant businesses we constantly extol. And when they refuse to hire, we would often rather go on television and call them greedy than sit and talk to them about their challenges.

Recessions have complex causes, but, as the man on the aisle reminded me, we do nothing to make things better when the companies on which we rely see Washington as adversary rather than partner.

(Stephen L. Carter, a Bloomberg View columnist, is a professor of law at Yale University. The opinions expressed are his own.)

To contact the writer of this column: stephen.carter@yale.edu

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[SivaGanesha 2]

It's an interesting article but I'm not fully buying it. No business hires out of charity. A business hires only because right now they can increase their profits by doing so. The American workplace is generally at-will, so if, in future, business conditions change (and that includes the regulatory environment), it is easy to let go of excess employees.

What I get from this article is an older guy, still with lots of energy and far from being ready to throw in the towel--but with less appetite for risk than he might have had 10 or 20 years ago. That's his right but the idea that he couldn't possibly take the risk of expanding his business and taking on more employees doesn't seem plausible.

I personally think this recession is all about an aging generation who made a lot of money in the 1980's and 1990's, held their own in the 2000's, but are getting too old to take big entrepreneurial risks in the 2010's.

"It's hard to have fun at 4-way unless your whole team gets down to the ground safely to do it again!"--Northern California Skydiving League re USPA Safety Day, March 8, 2014

[kelpdiver 2]

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The American workplace is generally at-will, so if, in future, business conditions change (and that includes the regulatory environment), it is easy to let go of excess employees.

Legally, yes. Practically, no. Firing people sends a message to the other employees, encourages them to think about going elsewhere on their own terms, rather than waiting for a pink slip. So what happens if you get rid of the excess (or least regarded) people and then you lose a chunk of your better people. Left are the deadwood who are just productive enough to escape notice.

This is true at large companies, and more so at smaller ones where there aren't a lot of other bodies to be fired before the person in question gets it.

Contractors can take some of that burden, but dumping contractors still tends to be more work for the others, and the same questions about their future. It's also expensive to keep hiring (and investing in the training ramp-up) and firing. Turnover, planned or not, is very expensive.

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I personally think this recession is all about an aging generation who made a lot of money in the 1980's and 1990's, held their own in the 2000's, but are getting too old to take big entrepreneurial risks in the 2010's.

based on...? In the 90s, they were taking stupid risks on eyeballs and mindshare. Now startups need to actually have revenues. But there's still a bunch of them out there. But after a decade of money see sawing, yes, I see more conservative money handling. That's a typical response to severe recessions. Has nothing to do with age, more with learned experiences.

[airdvr 210]

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The American workplace is generally at-will, so if, in future, business conditions change (and that includes the regulatory environment), it is easy to let go of excess employees.

It's pretty obvious you have no employees. It is anything but easy to get rid of an employee. Actually it's fairly costly. In Ohio as in most states we have an unemployment insurance pool that all businesses must pay into. Start getting rid of people who are eleigible to receive unemployment and your premium shoots up until you've shown that you're a better risk.

Lots of lawyers sitting around just waiting to file an Unjust Termination or Age Discrimintation suit. They lose but it costs to defend.

I agree with the article. Too many unanswered questions.

Please don't dent the planet.

Destinations by Roxanne