The Small-Business Hiring Outlook? Two More Years Wandering in the Desert

So when small business owners take stock of the current situation they are battered by two difficult years behind and a very uncertain period ahead. It is entirely reasonable for them to be extremely tight-fisted. The fact that risk is seen as being from Washington by leaders who will be in place for at least two more years makes it even more difficult to consider expansion. Decisions and policies made in Washington matter a great deal and affect small business in ways both immediate and life-threatening in consequence. Just a few examples:

  • Increasingly, even small businesses buy major materials on a global basis. Managing the global currency market and the decline of the dollar can increase costs effective with the very next purchase order.
  • The largest customers tend to be large multinational companies that source globally, so small companies must compete directly with foreign suppliers, and as a result have very limited pricing power. Inflation from any domestic source, particularly energy, matters a great deal because increased costs frequently can’t be passed on and are a loss to the business.
  • Small private companies tend to be very illiquid, with most of the year’s profit invested in business assets. Taxes require a critical outflow of cash that must be paid immediately. Cash lost to taxes is wholly unproductive, a pure loss of the most precious of assets.
  • The health and stability of customers matters. When they downsize, close a plant, or move it to a better environment in another country the business is almost always lost. If it is a major customer it may be fatal to the business.
  • Special favors matter. When the government grants waivers of costly changes to big corporations, smalls lose competitiveness because they are not exempt and must bear an even greater share of the cost.
  • When special groups are empowered, such as tort lawyers, unions, or other so-called progressive activists, big companies settle for what to them is a nominal amount. Threats of this type are almost always life and death affairs for a small business.

The actions of Congress and the administration have been decidedly negative on the above issues, and on so much more. There is every reason to believe they are capable of even more damage if they can find a way to do so. The political environment in this country is toxic to small business with a dramatic, immediate, and negative impact in ways most of the parties involved simply do not appreciate. Business owners are far more politically aware than the average person because it matters so much to them and they are seriously influenced by activities in Washington. In short, politics has a profound and direct impact on the decisions made by small businesses.

This is particularly true when it involves financial risk-taking and preservation of the business. Large corporate CEOs might risk their jobs making decisions for the future, but small business people risk their whole business and frequently all they own. The current political and economic environment makes them adamantly cautious, because the future looks so uncertain and the government so threatening. Caution means holding on to cash, keeping costs at a minimum, and not risking loss on new or expanded operations. Cash is security, survival, and the ability to protect oneself against long-term adversity. New hiring is a looking-forward commitment of very significant cash and resources, something that is decidedly not attractive today and highly unlikely to be so in the foreseeable future.

So we have a real problem. Businesses are reluctant to hire due to two hard years behind and concern about the future policies of an ideologically driven government that is clearly not pro-business ahead. Business conditions in 2010 are a little better than 2009, but nowhere near the prior levels that might encourage a more aggressive view. The three major forces in policymaking, President Obama, Harry Reid, and Nancy Pelosi, continue to hold office and make no secret that they desire to advance their agenda with or without regard to the Constitution. They and their anti-business orientation will remain in place for at least two more years. On the other side of the aisle, most of the senior Republicans who were so ineffective over the past decade will retain the same ability to compromise away government restraint for the next two years. The November elections may have helped the situation, but the Republicans have a long, long way to go to prove they are up to the generational level change it will take to turn things around. Worse, it is becoming easier to accept the possibility that the corruption between all the special interests, including corporate, and government is just too firmly entrenched and too lucrative to break apart at all. If that is true, nothing changes until an ultimate collapse.

What to do? Stay locked down, very conservative, and prepared for at least two more years wandering in the employment desert.