Public Policy Toward Small
Business and Entrepreneurship –
The American Approach
OECD Workshop – Understanding
Entrepreneurship: Issues and Numbers
7/27/2016
William J. Dennis, Jr.
Senior Research Fellow
NFIB Research Foundation
October 27, 2005
1
Approaching Policy Change
A Typology - "Start Point" for Policy Change
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Unfavorable
Favorable
Culture
Favorable
Entrepreneurial
Repressed
(Bottom up)
Unfavorable
Policy
Led
(Top down)
Stagnant
2
Assessing Policy
A Typology of Public Policy toward Sm. Bus.
Low
Direct
Assistance
High
High
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Impediments
Low
Compensating
Nurturing
Limiting
Competing
3
Policy Options
A Typology of Public Policy Objectives and Means
Policy Means
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Economic
Policy
Objective
Targeting High Potential
People/Firms
Social
Direct Assistance
Targeting
Underrepresented
Groups
Eliminate Impediments
Competition
Confined Competition
4
The American Approach – A Competition,
Not an Entrepreneurship (or SME) Policy

The Policy –
 Vigorous
(if not vicious) competition
 Few
impediments (relative)
 Little direct assistance (relative)
 Creeping social policy
 A supportive culture
 Continued
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growth of social and environmental regulation
5
Why a competition, not an entrepreneurship or small business, policy?


No policy for entrepreneurs has been announced nor is there
a structure to coordinate disparate policies that impact them.
 The introduction to the Small Business Act of 1953
emphasizes that the primary purpose of the Small
Business Administration (SBA) is to enhance competition.
Entrepreneurs and small-business owners exhibit notable
interest in policy impacting markets and notably little in direct
support (evidence by survey, meetings such as White House
Conferences, and trade associations).
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6
Why a competition, not an entrepreneurship or small business, policy? (cont.)

Relative Importance – policy actions shaping markets
vastly more important than direct assistance, e.g.,
 Finance
– govt. financially supports 1-2% of employing
businesses each year; a negligible number of nonemploying businesses. Over 8 million small-business loans
per year.
 Advice – govt. offers mgmt help to about 2% of employing
business each year; though to a significant number of nonemploying/nascent businesses. Contrast – 59% ask an
accountant for advice, 39% a lawyer, 29% a banker, etc.
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7
Impact of Competition
Step 1
Exits
Entry
Incumbent
Entry
Incumbent
Competition
Competition
Exits
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8
Impact of Competition
Step 2
Exits
Entry
Incumbent
Entry
Incumbent
Competition
Competition
Exits
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9
Major Areas of Economic
Deregulation in the United States







Transportation; the economists were right!
Financial Services; last vestiges of the Depression.
Energy; more than Enron.
Retail; Wal-Mart isn’t alone.
Telecommunications; from AT&T to the new world.
Competitive Sourcing; a $400 billion industry.
Trade; NAFTA, CAFTA, WTO and occasional backsliding.
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10
Major Areas Partially Deregulated

Agriculture;
 Regulated, e.g., dairy, cotton, most grains, citrus
 Not regulated, e.g., beef, pork, vegetables

Immigration; increasing – legal and illegal?

Labor; world markets change labor realities
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11
Major Areas Not Yet Deregulated

Health Care; the best and worst side-by-side.

Elementary and Secondary Education; the
American Achilles heel and a national disgrace!
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12
Financial Deregulation Helping
Entrepreneurs as Consumers, Too

Deregulation of Banking

“Prudent-Man” Rule

Credit Scoring

Securitization
"Junk Bonds"
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
13
Number of FDIC-Insured
Community Banks, 1985-2003
350
300
Total Banks
12000
250
200
8000
150
100
4000
50
Total Banks
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De Novo Banks
20
01
19
97
19
93
0
19
89
19
85
0
De Novo; Growth Banks
16000
Growth Banks
14
Percent
Change in Competition for Small
Business’s Banking Business
45
40
35
30
25
20
15
10
5
0
Increase
Decrease
1980
1982
1984
1987
1995
2001
Year
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15
Equity Capital
Venture Cap
Angel Cap
120
100
$Billions
80
60
40
20
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20
04
19
94
19
84
0
16
Moderating Tax Rates: Highest Federal
Marginal Income Tax Rate by Year
80
70
Percent - Rate
60
50
40
30
20
10
0
70
9
1
80
9
1
90
9
1
00
0
2
Year
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17
Taxes – Salient Issues






Graduated Corporate Income Tax
Expensing
Capital Gains – special treatment
R&D, R&E tax credits
State preferences
Taxation of Internet sales
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18
Novel Approaches to Small Firms

Small Business Innovation and Research Act (SBIR)
 Direct Assistance

Regulatory Flexibility Act (RFA; modified by SBREFA)
 Removing

Impediments
Graduated Corporate Income Tax and Expensing
 Some
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of both
19
Traditional Direct Assistance






SBA loan guarantees – 115,000 loans
USDA-RD loans – 8,000
HUD – tax credits for designated areas
MBDA – 30,000 contacts/clients, advisory
assistance
State & local economic development - $50 bill.
SBA counseling/training – 1.2 mill. contacts/clients
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20