How the Emergency Economic Stabilization Act of 2008 Affects "Real" Small Businesses
Yesterday, the United States House of Representatives Committee on Financial Services released the text of the Emergency Economic Stabilization Act of 2008. I spent a few hours reading through it and I have some thoughts. In a nutshell, the Act allows the United States Secretary of the Treasury to establish a Troubled Asset Relief Program (TARP) pursuant to which it can purchase the "troubled assets" of certain financial institutions. It also creates a new regulatory body, the Office of Financial Stability, within the Treasury Department, the purpose of which is to implement TARP. You can view a section-by-section summary of the Act here. (PDF)
While I am glad to see that, under the Act, the actions of regulators would be subject to review by federal courts, and also that the Act includes some provisions to help home buyers and (on paper anyway) prevent the corporate elite who started all of these problems from enjoying windfall profits, I can't help but note that this is not really an emergency. An emergency is unforeseen, yet we've been watching this happen for years. And lawmakers have done nothing until now. Calling it am "emergency" does not excuse any of them, or the millionaires who are at the heart of this debacle, from the consequences they should (but will not likely) face. Regardless of whether we "must" act now, and in this way, I am very troubled by this piece of legislation from a policy perspective, particularly as it affects Indie Business owners. Here's why.
Small Business in the United States of America
The US Small Business Administration allows certain businesses to be defined as "small" so that they can take advantage of various set-aside programs and benefits that theoretically ensure that they can get their fair share of government contracts, minority set asides and other opportunities. The amount of revenue a "small" business can generate and still qualify as "small" varies depending on the industry.
A sheep farmer, for example, is "small" if he grosses $750,000 or less a year. That's a lot of money to most people. Other companies can make endless millions of dollars without limit so long as they have only a certain number of employees. In practice, this has amounted to the mis-classifying of "employees" as "independent contractors" by multi-billion dollar companies so they can take advantage of more government contracts.
So you see, "small" is not really small in America.
America's Real Small Businesses
The true definition of small business is represented by an important and growing segment of our economy that is often overlooked. They are what I call "Indie Businesses" and I am proud to be counted among their number. We are making substantial contributions, yet not grossing anywhere near what the US government calls "small."
Indie Business owners are a subset of the larger category of "small" business owners. We are a sort of cross between consumers and business owners. We are consumer business owners if you will.
Many of us maintain traditional jobs as we also own and manage our businesses. Many of us are also the primary home managers and caregivers to our children. Some of us leave the traditional workforce so we can be more accessible to our children while they are young, yet we must continue to make a financial contribution to the family, so we work at home or in a location close to home so we can do both.
There was a time when we were mainly women who were also mothers, but lately, our ranks have swelled to include men who are fathers, and on a larger scale, people in general who seek an alternative to the limitations that come along with pursuing a traditional career path. My educated guess based on nearly 15 years of work in this field leads me to believe that our annual income ranges from $0 and $2 or $3M a year on the high end -- nowhere near the average annual gross receipts of a "small" business as defined by our government.
Now, The Bailout
It is against this backdrop that we must assess the current economic bailout. Let's look at the big picture. The US Department of Treasury's stated mission is to "serve the American people and strengthen national security by managing the US Government's finances effectively, promoting economic growth and stability, and ensuring the safety, soundness, and security of the US and international financial systems." So let's start with that. Buying out failed mortgage brokers because the Secretary of the Treasury thinks it's a good idea does not manage taxpayer money effectively. That's reason enough to vote against this bailout plan.
How the Bailout is Affecting Indie Business Owners
The bailout sends hard working Indie Business owners the wrong policy message. Government exists to support and encourage policies that allow us to live the "American dream," whatever that means to us. But bailing out large companies by simply buying them with our money, after watching their leaders make one poor business decision after another for years, underscores the fact that, in America, you can wisely invest your money in your business all you want, and the government will still find a way to put your assets at risk.
Credit is already nearly impossible to come by for our kind of businesses. Most Indie Businesses are owned by women who, no matter the size of the business they own, already have a hard time procuring business loans and venture capital investments. Our only real option is to bootstrap our ventures with credit cards while holding down a full-time job. We do this for years hoping that the business will eventually support us so we can exit the traditional workforce and continue to pursue our dream full-time.
Some members of the Indie Beauty Network have told me, for example, that their attempts to purchase manufacturing supplies using credit cards through Wachovia (one of the failing financial institutions) are being declined even though they have credit on the card, are not even close to maxing it out and have not missed any payments. I'm sure that will continue. How can they run their manufacturing businesses if they can't purchase supplies?
This bailout plan creates a climate that is decidedly unfriendly to Indie Business owners who are managing our nation's real small businesses. In addition, we are running our homes, trying to find gas (in Charlotte, NC where I live, most stations have none!) and raising children to thrive in a world where business ownership is a necessity and not an option as technology replaces the jobs that are not shipped overseas. We are making significant contributions to our nation's economy, while also working to secure our futures and the futures of our children.
This bailout is demoralizing and distasteful. It sends the message to Indie Business owners that unethical business practices are overlooked and rewarded. We live in a nation where traditional jobs are drying up by the millions. We must have our own businesses to be comfortable and to be empowered to provide a strong launching pad for our children. We are leaving no stone unturned in order to do that. Yet, our credit options are fizzling out as our need to be profitable increases literally by the hour.
This new law is the next chapter in the saga of the incestuous relationship that multi-million dollar business leaders have with lawmakers and regulators. I have nothing against multi-million dollar corporations. I buy from them and benefit from their products and services every day. Big businesses, just like small and Indie ones, have no personality in and of themselves. They do nothing on their own. Their actions are dictated by the leaders who manage them. The problem is not big businesses. The problem is the people who lead them.
And it is these people, along with our representatives in Congress, who have created a framework that is broken and intolerable. It is up to us to rise up and do something about it.
How the Bailout Will Affect Future Indie Business Owners
I have come to the realization that, bad policy though it may be, this bailout is a done deal for one reason and one reason alone.
We simply have no choice in the matter.
The success of American business (both large, small and Indie) rests in large part on our global credibility, and the principle that hard, honest work is rewarded. That if you create a business that generates a profit by behaving ethically and providing valuable products and services, your tenacity and innovation will be recognized and celebrated. That is foundational to our economy.
The government's purchase of worthless financial related assets for years to come, with money it does not have shakes that foundation to its core, makes a mockery of desirable ethical business practices, and discourages average Americans from going to the trouble of taking on any business risk at all. Again, this is devastating in a world where business ownership is not an option. It is a necessity.
And yet, there are no other viable options to this bailout. The alternative of course is to let these big mortgage giants solve their own problems. That's a lousy option considering that the people who would be solving the problems have already proven themselves to be grossly irresponsible and greedy. On the other hand, a bailout proves that deregulation does not work, and that is already a huge problem for Indie Business owners.
Deregulation and lack of effective, honest regulatory oversight at all levels of the financial sector is a large part of the reason why financial institutions are failing. This is recognized by both the Republican and the Democratic party presidential candidates. (Chuck Baldwin, running on the Constitutional Party ticket, favors almost no regulation at all, a position with which I do not agree.)
So what does this mean? Well, the pendulum will probably swing back to -- you guessed it -- unnecessary and burdensome regulation. And more regulation hurts Indie Business owners the most. Even though we do not contribute to the problem, we will be saddled with the red tape, increased fees and overbearing bureaucracy.
This is already happening in the food and cosmetics arenas. The US Committee of Energy & Commerce is now considering new legislation that would force food and cosmetics manufacturers, regardless of size, to pay from $2,000 to $12,000 in annual registration fees and comply with a mountain of paperwork. The FDA Globalization Act of 2008 would put thousands of Indie Business owner in these sectors out of business, and prevent millions more from starting. Those wonderful organic handmade moisturizing soaps you buy? Gone. The tasty holiday cookies you get from your local market? Gone. This is but one example of how increased regulation will hurt all of us. (More on this draft law with a video and a Petition you can sign to oppose the law is here.
Indie Business owners want to do our part to bolster the American economy, and we are doing so by introducing innovative products and services, increasing competition across all sectors of the economy, ramping up American exports and keeping prices for products and services accessible to the vast majority of Americans. Bailing out fat cats is countering our best efforts in all of these areas, including our best efforts to make a contribution while also securing our futures and the futures of our children.
I believe that entrepreneurship is the next great civil and equal rights issue of our time.
We must work to create an environment where our children and their children can launch, own and manage businesses without fear of excessive government bureaucracy, or so little oversight that we find ourselves in a situation like this again.
The states can do a lot to support businesses where they are, but if the federal government does not create an overall framework that allows Indies to flourish, future generations are in big trouble.
The saddest part of the Economic Stabilization Act of 2008 and the unethical practices that gave rise to it, is not that my and your business are adversely affected, but that our children's opportunities to own profitable businesses are adversely affected. It's hard enough to start a business today, even with adequate capital and good credit. What will it be like for the next generation?
Will my children and theirs be saddled with fallout from this week's activities on Capitol Hill? It is inexcusable that the rush to "solve" this problem is going to give rise to another one. That is, that future generations, no matter how hard or smart they work to build a lasting business legacy, will see those legacies constantly at risk of being demolished at worst and undercut at best, by the very government that is duty-bound to protect, defend and support them.
What do you think?
Last week, I touched based with several Indies who are interested in joining me in Washington, DC shortly after the new president is inaugurated to make our position known where it counts: at the White House and on Capitol Hill. I have started the process of obtaining a permit to allow us to congregate in LaFayette Park across the street from the White House so our new president will know that we want to be a part of the political process, and so the media can have an opportunity to hear our stories.
If I get positive feedback in the comments section of this blog post, I will invest the time and my own personal resources to make this happen. What will you do? Join me? Tell your friends? I need to hear from you!