By Lawrence J. McQuillan
Which state policies would California’s small-business owners like to change? To find out, Governor Arnold Schwarzenegger recently convened a two-day conference in Los Angeles.
The first-ever “Governor’s Conference on Small Business and Entrepreneurship” included small-business owners, community-college administrators, state employment and development officials, trade-group representatives, and policy researchers, including me.
The conference featured 10 caucuses in policy areas such as taxation, regulation, education, health care, transportation, and procurement. Each caucus developed policy recommendations and submitted them to participants for a vote on the final day. There were 37 recommendations total, and the top-10 vote getters would be refined and advanced as part of the governor’s small-business agenda for his final two years in office.
The top-10 recommendations are an interesting mixed bag: restore state investment in Small Business Development Centers to support small businesses and leverage federal dollars with matching state funds; have the California Air Resources Board assess the costs to small businesses of complying with AB 32 and identify financing programs to help alleviate these costs; permit more involvement by small businesses in the state regulatory process and have the state adopt a regulatory flexibility act; conduct an independent audit to ensure current laws and regulations regarding small business contracting procedures, laws, and goals are enforced.
Other top-10 recommendations: increase federal and state funding for loan guarantees and micro-lending programs to lower lender risk exposure; amend the mission statement of the California Education Code to emphasize preparing students to “compete and contribute to a global economy;” create a more effective and transparent system for monitoring small-business procurement goals and increase set-aside contracts and unbundling; change the minimum franchise tax to a uniform fee applicable to all businesses that incorporate; require shared financial responsibility among all stakeholders to facilitate health-care access for all; and eliminate barriers to capital by establishing new public-private funding mechanisms to encourage investment in small businesses.
The group’s best recommendations call for reducing regulatory costs on small businesses, which are greater on a per-employee basis than for large companies. But a major drawback with many of the proposals is that they invite more government involvement in the everyday life of Californians: new government programs, more government spending and debt, more regulatory agencies and oversight, while not even starting a discussion on the merits of AB 32, school choice, and a nondiscriminatory tax code.
Greater government dependency and intervention will reduce innovation, economic growth, and job creation. Or, as Albert Einstein said, “Bureaucracy is the death of all sound work.” Research proves that the most dynamic, innovative, and robust state economies are those that minimize government intervention and maximize economic freedom. Giving entrepreneurs the freedom to create, take risks, and assume both the profits and losses of their actions is the best recipe to drive job creation and prosperity.
California’s 3.6 million small businesses are primary sources of jobs and innovation. Small employers represent 99 percent of California’s employers and hire 52 percent of the state’s private-sector workers. Small businesses created 88 percent of the state’s net new jobs from 2004 through 2005. They generate annually more than $150 billion in sales.
It’s no exaggeration to say that small businesses will propel California out of its current recession. So it’s important that the governor and state legislature know what small-business owners want. But it’s equally important that business owners seek reforms that will actually invigorate the state’s economy, not make it worse and more dependent on government revenue.
Sadly, California’s small-business community missed an opportunity boldly to shout: “repeal AB 32, lower the minimum wage, loosen overtime rules, grant school choice for all, cap state spending, don’t enact the proposed 1.5-cent sales tax hike, enact a flat income tax to reduce the revenue rollercoaster, and generally leave us alone, Sacramento!”
The State of California is now priced as a greater bankruptcy risk than Slovakia. We shouldn’t ask the state to take on more debt or spending. Instead, we should ask the governor and state legislature to free the California economy so that businesses can grow, hire new workers, produce new products for global markets, and generate needed tax revenue.
Lawrence J. McQuillan, Ph.D., is Director of Business and Economic Studies at the California-based Pacific Research Institute for Public Policy. Contact him at LMcQuillan@pacificresearch.org.