Almost everyone agrees that faster economic growth would be beneficial. It would provide more new jobs as well as bigger raises for the already employed. It would also bring in more tax revenue which would help greatly to shrink our large annual spending deficits.
My last two posts, here and here, present first an optimistic and then a very pessimistic view about the chances of speeding up growth. In particular, the banker Satyajit Das, thinks that even the fairly anemic 2.1% average growth of the past few years will be impossible to maintain in the years ahead.
My next few posts will focus on exploring several specific ways in which growth could be speeded up. First of all, I refer to a report from Babson College, “The State of Small Business 2016” which is the basis of a recent article in USA Today by Warren Buffett and others, “To grow the economy, grow small business.”
Key points are:
- Capital. Securing financing remains a major barrier to growth. Small business owners overwhelmingly rely on banks for funding but banks face more stringent regulatory requirements. The median funding request for small businesses is $100,000 but businesses typically secure jus $40,500.
- Regulation. The typical small business owner spends 200 hours per year on regulatory compliance. Streamlining approval processes would help immensely.
- Skills. 70% of small businesses find it difficult to hire qualified employees. Furthermore there are currently 5.8 million job openings in the U.S. This reflects a mismatch between company needs and applicants’ skills. School districts and community colleges could help alleviate this problem.
- Technology. Accessing better technology is perceived as costly and requires skills that many businesses lack. Cybersecurity and protecting intellectual property are two significant areas of exposure for small business, which 40% are ill-prepared to address.
Small businesses create over 60% of net new private-sector jobs. Helping them expand is one of the best ways to support economic growth.