Des Moines Register
06-03-06
Government programs can boost small-business success
IOWA VIEW
According to the United States Labor Department, 212,704 jobs were eliminated
in January 2006 — up 32 percent from December 2005. Large companies
continue to announce layoffs. Kraft Foods: 8,000 employees. Ford Motors:
30,000 employees. Lear Seating: 6,500 employees. Gateway computers: 2,250
employees.
Closer to home, Whirlpool Corp. announced May 10 that it would cut 4,500 jobs,
close plants and consolidate offices. That announcement came 40 days after
Whirlpool completed its acquisition of Newton-based Maytag Corp. — a move
that impacted about 1,800 active workers at the factory and headquarters.
What happens to people who lose their jobs? While some find other jobs, many
start their own businesses. The government can play an important role in helping
start these new businesses and improve the success rate of small firms.
Research has shown that specific government programs that assist small firms
provide a significant return on taxpayer dollars, and we need more of them given
the recent employment picture.
Currently there are at least 15 million small firms in the United States (those with
fewer than 500 employees), and as many as 1 million new firms launch each
year. It's the push-pull concept in action: Some are pulled into starting a new
business because of a wonderful opportunity, while others are pushed because
of a disruption in their lives — such as a layoff.
The importance of small firms in the United States is evident in that they create
almost all new jobs and most innovations. Unfortunately, most new companies
fail within a relatively short time: 50 percent are no longer in operation after three
years. That number jumps to 80 percent after five years. Distressed or failed
businesses result in significant personal stress for the owner, the loss of jobs and
elimination of tax revenues.
Recent evidence suggests that business failures are increasing, and research
indicates that a primary reason is a lack of business skills. Many business
owners simply do not have the training or skills necessary to successfully operate
a business. A recent study by fellow Iowa State Professor Rick Carter and me
on small firm failures in Iowa suggests that improved business skills would help
business owners stay in business.
Government-subsidized programs can provide important business skills in
finance, marketing, accounting, human resources, legal issues and other areas.
Government agencies also can provide important networking opportunities that
lead to access to a wide range of useful professional contacts that can help
develop business strategies, raise capital, manage risk and build organizational
skills. The benefit to taxpayers is that these businesses create high-quality jobs
and generate important tax revenues.
Perhaps the best example of this is in the development of new technology. This
remains a competitive advantage for the U.S. economy, and businesses that
introduce new technology are especially important in maintaining our economic
competitiveness and producing jobs. But the process through which it is
introduced is complex, expensive and time-consuming — often seven to 10
years. Most owners of these companies are scientists trying to commercialize a
newly discovered innovation and who have no business training. They may need
the greatest amount of government assistance.
In the end, government-sponsored assistance programs are cost effective. That
conclusion is supported by an independent study by James Chrisman of the
University of Mississippi, who tracked progress of clients assisted by the Iowa
Small Business Development Centers.
Such government-funded programs help save businesses, create jobs, generate
tax revenues and contribute to economic development. They boost the small-firm
success that is critical to U.S. economic vitality.
HOWARD VAN AUKEN is a professor of management in the College of
Business at Iowa State University. He has published more than 50 papers on
entrepreneurship and small business.