How do small businesses create lots of jobs?

Small businesses create jobs, but it's a lot more complicated than all the political noise would have us believe.

And there's good reason to believe that the Obama and Democratic governing ideas will do more for small business job creation than would the Romney and Republican ideas. 

Any burst of small business hiring will come largely from introducing innovative ideas to the marketplace.  Innovation needs to be first stimulated with ideas and money, and then nurtured by supporting it with people possessing certain vital skills.  The marketplace by itself can provide some amounts of money and skilled personnel, but under today's risk-averse business environment "money is tight" as they say.  Also, skills development is lagging as fiscally austere state budgets are reducing the amount of available public education.

An energetic Federal government that has the insight and the moxey to want to make targeted efforts to compensate for the tightness of private capital and state budgets can address these needs.  Doing that will help create a small business surge in job creation.  These are ideas that Democrats are more comfortable with than are the Republicans.  As the saying goes, actions speak louder than words.

What's a small business look like?

There are multiple definitions of "small business."  For the most part, they focus on the number of employees and/or the amount of annual sales.  The numbers vary, depending on who is doing the talking about "small business."  We can appreciate that a business that employs 10 or fewer is "small," but is it still seen as "small" if it employs 500 people?  In some cases it deserves to be called small, but not always.  Getting a handle on what makes a business small is not an easy task.

Many small businesses will hire to get themselves off the ground, and then have no need for more employees.

A large number of small businesses are closely-held corporations; visible among these would be certain businesses conducted by celebrities and professional athletes.  Those are likely to be very wealthy people, but mostly they have no need to employ lots of others, either at present or in the future.  This is no knock on celebrities and athletes, but it just stands to reason that--once successful--a celebrity's needs tomorrow or next year will be fulfilled by about the same number of employees as it takes to do those things today.  The same thing is true for numerous other of these closely-held corporations.

In any case, most--and the number is something like 97% or 98%--small business owners don't fall into the celebrity or athlete category because their annual earnings are under the current political buzz-number of $250,000.  That's not celebrity or professional athlete status.

These truly small businesses include places like your local dry cleaner, jewelry store, dentist, bicycle shop, restaurant or cafe, gift store, gardener, car repair shop, and many others.  Since there are millions of these, their total employment adds up and it's important.

Unfortunately, though, small businesses like these, once established, tend to grow to a certain size, stabilize, and then have little to no need to hire any further workers beyond what they already have.  Often, they will contract, sometimes disappearing altogether, sloughing off employees in the process.

This is how small businesses create lots of jobs

Small businesses can contribute to overall employment growth, but the biggest contributors are those that are start-ups or in early growth stages.  To start up and get growing, these companies need to attract some significant amounts of venture funding, seed capital or other subsidy.  Banks and private sources tend to be more risk-averse these days than in prior years.  As a result, the growth of innovative firms is being stifled.

There's been lots of misinformation scattered about regarding the failures of businesses that received Federal stimulus monies under the Obama program of a couple of years ago.  Nobody likes to have failures, but the fact is that some innovations will fail; that's normal.  The incidence of failures of those companies that received Federal money is no greater than the incidence of failure in the innovation universe at large.

On the subject of skilled workers, the plan that President Obama and the Democratic Party have to move Federal funds back into the states for support of education has lots more promise to it than does the competing attitude from the Romney and Republican campaigns of merely talking about how the free market will solve educational problems.  Marketplaces solve problems by taking lots of time to sift through a myriad of options, not by concerted and targeted efforts.  Disbursement of Federal funds can be concerted and targeted.

Time is money

There's a value in timeliness.  The sooner that the public education systems can be improved, the better for all of us.  It will take more than money, of course, because there are some significant other issues of quality to be resolved, too, but the positive results will come sooner with an infusion of Federal funding than they will without it.

And that is something that a reelected President Obama with a supportive Congress is much more comfortable with than are Mr. Romney and the Republicans.

Mr. Romney and the Republicans like to talk about weakening the regulatory environment in order to stimulate small business hiring.  Sure, there are always regulations that can be viewed as the bogey-man; and, in fact, some deserve to be changed or maybe even discontinued.   Obama and the Democrats understand this, too.  But modifying or removing regulations does nothing to solve the problems of the availability of funding and of skilled workers.

Federal investments of this nature have been stymied for most of the last two years by a Republican-dominated House of Representatives that has consistently blocked the President's efforts to implement programs such as we are talking about here.  Essentially, the marketplace has had that time available to it to act in the way that the Romney campaign says will result in monumental job creation.  Well, we are still waiting for something to happen.

Small business job creation in large numbers will come about only with an expensive and well-planned commitment by the Federal government.  Or, without such a commitment, it will happen only with the passage of much more time.

It is better for the country to have action and results sooner rather than later.  It will take President Obama and Democrats in Congress to make that happen.