This Is Small Business in America: Burdened, Crushed, Doomed

frodo · Feb 25, 2012

If this jeremiad about the costs of doing business in America is correct, then you had better fix it.

Alternatively send your entrepreneurs to Australia. It's much easier to start a business here.

Guest Post: This Is Small Business in America: Burdened, Crushed, Doomed

Submitted by Charles Hugh Smith from Of Two Minds

This Is Small Business in America: Burdened, Crushed, Doomed

If you make it increasingly costly and risky to open a small enterprise, then no wonder unemployment remains high.

You hear a lot about Kafkaesque stifling bureaucracy in Greece and other struggling European nations, but America's Status Quo is trying its best to destroy small enterprise with taxes and crushing bureaucracy. I am self-employed, and have been for most of my life. When I did take a paid position, it was in other small enterprises or local non-profit organizations.

I mention this because there is an unbridgeable divide in any discussion of small business between those who have no experience in entrepreneural enterprise (i.e. they've worked for the government, NGOs/non-profits or Corporate America their entire careers) and those who have.

There are all sorts of similar chasms that cannot be crossed and which quickly reveal a surreal disconnect from actual lived reality: for example, the difference between actually playing football--yes, with pads, a muddy field and guys trying to slam you to the ground--and being an armchair quarterback who's never been hit even once, never caught a pass or ever struggled to bring down a faster, bigger player. (And yes, I did play football in high school as a poor dumb skinny kid who mostly warmed the bench for good reason, but I lettered.)

At the extreme of this disconnect, we have armchair generals screaming for war who have no experience of combat or war as it is actually experienced.

You get the point: it's very easy for well-paid pundits who have never started a single real enterprise or met a single payroll to pontificate about "opportunity" and small business as the engine of growth, blah blah blah. It's also easy for those with no actual experience to reach all sorts of absurd conclusions about how easy it is to turn a small business into great wealth. (No, Bain Capital or other Wall Street outposts of financialization are not "small business.")

In real life, it's only easy to run a small business into the ground, especially when there's a thousand tons of junk fees, taxes and useless bureaucratic requirements on your back. Lest you think this an exaggeration, consider that it took two years and $200,000 to open an ice cream parlor in a vacant retail space:

"Ms. Pries said it took two years to open the ice cream parlor, due largely to the citys morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.

Its just a huge risk, she said, noting that the financing came from family and friends, not a bank. At several points you wonder if you should just walk away and take the loss.

Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didnt have one); and an $11,000 charge just to turn on the water."

There is nothing mysterious about the cause of this Kafkaesque Status Quo: each city, county, state and Federal fiefdom must justify its existence and payroll, and everyone in each fiefdom will fight with every fiber of their being to protect their turf. Politically, it's a fight to the death to trim even the thinnest slice of bureaucracy, and so little if any ever gets trimmed.

Nobody will care until the city, county and state's revenues collapse as people opt out of supporting the bloated dead-weight of the Status Quo with their own sweat and blood.

The only way to survive is to not have a "real" business, i.e. you write code in your living room or parents' basement, or you do enough business in the informal sector (cash) to support your high-cost formal business.

....................

One of your recent posts made me think of how difficult reinventing communities and coming up with creative solutions for the problems of unemployment and displaced people in our society is. I think it has to do mainly with the way in which lower middle class / middle class people are overburdened with taxation. As you stated in your post, the amount of taxation is staggering. Especially for the self employed, like myself.

My wife and I pay much the same percentage taxes as you listed in your post. I live in a rural area of Texas and from time to time small acreage properties go up for sale around our home. If we wanted to buy some adjacent acreage for the purpose of inviting a few of our friends, who are teetering on the edge of unemployment and facing the prospect of real poverty, to live next to us and help each other grow food, take care of livestock and find creative self employment opportunities in our area together, the resultant burden of taxation would prevent it.

For example, as I see it, my wife and I would now be paying property taxes on two properties, one would not have the homestead exemption. Any "improvement" on the new property, e.g. a small house built for our friends, would only increase the property taxes. We would also have to consider, if we planned to live together in this way long term with the major contribution of our "unemployed" friends being their labor and time invested in our communal living experiment, what kinds of taxes we might be subject to in the future based on the way we are using each others time and energy to achieve solutions for food production, child rearing, shelter, etc. I don't know if we would be subjected to any taxation in doing these things only assuming we might be.

To attempt to sum up my reaction to your post, I will make a list of what I think would impede a lower middle class person who has some discretionary income and could provide a small house and small acreage for the benefit of a few friends on the brink of poverty, with the view to the arrangement being ultimately beneficial to all involved.

1. Increased property taxes
2. The possibility of providing mandatory health insurance through "Obama care"
3. Taxes and or restrictions on what produce we can sell through farmer's markets or through the Internet, e.g. the recent crackdown on raw milk sells, and "cottage foods" like goat cheese, homemade pies, homemade canned goods, etc. In other words, if our whole way of life is to produce locally grown food for ourselves and our extended "family" and this is threatened through excessive regulation and or taxation, I wonder if it's really realistic to pursue.
4. In Texas taxes are rising, even in this recession school taxes, property taxes, fees, etc. are all going up.
5. Federal taxes look like they are poised to increase.

If I didn't have to worry about taking on the burden of all these forms of taxation, property taxes being the most onerous to me, I might could use what capital I have to invest in a communal living arrangement that I would hope to be of benefit to my family and some of our friends.

...............

In short, if we were not taxed every time we tried to do something, we just might (*)(*)(*)(*) well do something!

Let's focus on getting rid of property taxes, and other forms of ridiculous taxation so that we can free up our energy and time to do the very things you advocated so well in your post.

I realize the benefit to myself and so many of some forms of government assistance, for example food stamps, child tax credit, energy efficiency rebates.... I think good government programs could be sustained if we did things like close our military bases around the world, brought the troops back to the states, and made education and real estate much less expensive, and allowed people to grow and market local foods without encumberance.

You wrote:

Here is the ugly truth about the Savior State, welfare state, social welfare state, or whatever you choose to call the Central State: The Savior State displaces and destroys community and social capital. By making individuals dependent on the Central State for free money, free food, free housing, etc., then the State has taken over the natural function of community.

In my opinion, it is also that the Savior State displaces and destroys even the potential for ( my main point) community and social capital. By placing oppressive, punitive, discouraging, and unreasonable forms of taxation on individuals who may otherwise extend resources of capital towards helping their neighbors, friends, and even family. In this way, then, the State has decided to oppress and retard the development of communities.

Well said, Eric, thank you. Before you jump in to "correct" this view of small enterprise in America, first list how many enterprises you have started, owned or run, and how many people were/are on your payroll.

If you think it's so easy to get rich in small business, then here's the keys, and payday's on Friday.
Click to expand...

http://www.zerohedge.com/news/guest-post-small-business-america-burdened-crushed-doomed

sunnyside · Feb 26, 2012

I'm sure how things are handled vary wildly state by state, probably even country to country.

But this is an area that I wish people would focus more on. People tend to get fixated on international politics they have absolutely zero bearing on, myself included, and then have no idea about local laws and politicians where they could actually make a difference, and a new business here or there could really change an area.

fiddlerdave · Feb 26, 2012

Pul-lease.

This little story has been evolving, and now I notice they are simply leaving off the LOCATION that would actually indicate what an idiotic example of the "USA" business climate it is.

This parlor's location was to be on Haight-Asbury street in San Francisco.

Let's list why its such an absurd example of the so-called difficulty of business in teh USA.

1. San Francisco is horrendously expensive in EVERY regard.

2. SF preserves the nature of business blocks like the Haight VERY carefully, which is why it remains a tourist destination for untold numbers so people each year.

3. The people in SF DON'T WANT ticky tacky businesses, they don't want big chains, they don't want garish junk, they DO want single blocks to have a mix of businesses, some cheap, some expensive, some small, some bigger, some for locals and some for tourists, and so on.

4. NOT ONE BIT of this is a SECRET, and if this woman just walked in and wanted to open an ice cream parlor somewhere, she is an idiot, and never talked to a single professional, business adviser, or anyone who pays the slightest attention to business in SF.

5. SF does all this because they want the city to be a beautiful and wonderful place to live, and not have it resemble any of the other of disasters of urban sprawl and destruction around the country.

This they have a city that is INCREDIBLY successful, a place so nice to live that people pay a FORTUNE to live in modest condos there and LOVE IT. They often do not own or WANT to own a car. A friend that lived there had 16 different COUNTRIES of cuisine of small friendly and reasonably priced restaurants in his ONE block, along with some incredibly expensive ones, and we could eat with the owner in 90% of them.

There are few places in the USA to match SF in this regard, and trying to say these difficulties and costs are the usual for American business is ridiculous and simply a PR propaganda stunt.

And if the woman had a lick of sense, assuming the story is even true, she would have known, and possibly avoided a bunch of pitfalls easily.

And BTW, I paid over $5000 to "turn on the water" in a suburb of Denver 20 years ago. Business costs are like that. In SF, I would expect it to be expensive!

She needs to move to Kansas! Oh, wait, many people have to TRUCK their water in Kansas because many of the wells for cities are all polluted from 100 years of fertilizer making the aquifers poisonous! SF does advanced treatment to avoid pollution. Gee, how unfair to not pass on those costs to the next generation.

The Judge · Feb 26, 2012

fiddlerdave said: ↑

Pul-lease.

This little story has been evolving, and now I notice they are simply leaving off the LOCATION that would actually indicate what an idiotic example of the "USA" business climate it is.

This parlor's location was to be on Haight-Asbury street in San Francisco.

Let's list why its such an absurd example of the so-called difficulty of business in teh USA.

1. San Francisco is horrendously expensive in EVERY regard.

2. SF preserves the nature of business blocks like the Haight VERY carefully, which is why it remains a tourist destination for untold numbers so people each year.

3. The people in SF DON'T WANT ticky tacky businesses, they don't want big chains, they don't want garish junk, they DO want single blocks to have a mix of businesses, some cheap, some expensive, some small, some bigger, some for locals and some for tourists, and so on.

4. NOT ONE BIT of this is a SECRET, and if this woman just walked in and wanted to open an ice cream parlor somewhere, she is an idiot, and never talked to a single professional, business adviser, or anyone who pays the slightest attention to business in SF.

5. SF does all this because they want the city to be a beautiful and wonderful place to live, and not have it resemble any of the other of disasters of urban sprawl and destruction around the country.

This they have a city that is INCREDIBLY successful, a place so nice to live that people pay a FORTUNE to live in modest condos there and LOVE IT. They often do not own or WANT to own a car. A friend that lived there had 16 different COUNTRIES of cuisine of small friendly and reasonably priced restaurants in his ONE block, along with some incredibly expensive ones, and we could eat with the owner in 90% of them.

There are few places in the USA to match SF in this regard, and trying to say these difficulties and costs are the usual for American business is ridiculous and simply a PR propaganda stunt.

And if the woman had a lick of sense, assuming the story is even true, she would have known, and possibly avoided a bunch of pitfalls easily.

And BTW, I paid over $5000 to "turn on the water" in a suburb of Denver 20 years ago. Business costs are like that. In SF, I would expect it to be expensive!

She needs to move to Kansas! Oh, wait, many people have to TRUCK their water in Kansas because many of the wells for cities are all polluted from 100 years of fertilizer making the aquifers poisonous! SF does advanced treatment to avoid pollution. Gee, how unfair to not pass on those costs to the next generation.
Click to expand...

Excellent analysis, and I agree. I enjoyed living in the bay area and it is one of or the best place to live in the States.

Abu Sina · Feb 26, 2012

of all the cities I been to in the USA San Francisco was the best
the most beautiful, the nicest to walk around, best to get good food, only thing was the fog and cold that suddenly appeared out of nothing
I liked sausolito and marin county too and the forests there were amazing

leftlegmoderate · Feb 26, 2012

Small businesses are extremely important to the U.S. economy, and over taxing or putting too much regulatory pressure on them is detrimental to us all.

How important are small businesses to the U.S. economy?

Small firms:
Represent 99.7 percent of all employer firms.
Employ half of all private sector employees.
Pay 44 percent of total U.S. private payroll.
Generated 65 percent of net new jobs over the past 17 years.
Create more than half of the nonfarm private GDP.
Hire 43 percent of high tech workers ( scientists, engineers, computer programmers, and others).
Are 52 percent home-based and 2 percent franchises.
Made up 97.5 percent of all identified exporters and produced 31 percent of export value in FY 2008.
Produce 13 times more patents per employee than large patenting firms.
Click to expand...

What share of net new jobs do small businesses create?

Small firms accounted for 65 percent (or 9.8 million) of the 15 million net new jobs created between 1993 and 2009.
Much of the job growth is from fast-growing high-impact firms, which represents about 5-6 percent of all firms and are on average 25 years old.
Click to expand...

How do regulations affect small firms?

The smallest firms (fewer than 20 employees) spend 36 percent more per employee than larger firms to comply with federal regulations. The disparity is greatest in two areas: very small firms spend four and a half times as much per employee to comply with environmental regulations and three times more per employee on tax compliance than their largest counterparts.
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http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24

fiddlerdave · Feb 26, 2012

leftlegmoderate said: ↑

Small businesses are extremely important to the U.S. economy, and over taxing or putting too much regulatory pressure on them is detrimental to us all.
Click to expand...

Indeed, small businesses are quite important.

But many regulations in places like SF are designed to restrict the massive overbuilding of BIG CHAINS and monster businesses that would have SF simply be a city of Arby's, Burger King, Micky D's and The GAP Tee Shirt Outlet on EVERY street and corner!

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