William j dennis jr senior research fellow nfib research foundation october 27 2005
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Public Policy Toward Small Business and Entrepreneurship –The American Approach OECD Workshop – Understanding Entrepreneurship: Issues and Numbers. William J. Dennis, Jr. Senior Research Fellow NFIB Research Foundation October 27, 2005. Approaching Policy Change.

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William J. Dennis, Jr. Senior Research Fellow NFIB Research Foundation October 27, 2005

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William j dennis jr senior research fellow nfib research foundation october 27 2005

Public Policy Toward Small Business and Entrepreneurship –The American ApproachOECD Workshop – Understanding Entrepreneurship: Issues and Numbers

William J. Dennis, Jr.

Senior Research Fellow

NFIB Research Foundation

October 27, 2005


Approaching policy change

Approaching Policy Change

A Typology - "Start Point" for Policy Change

Policy

Unfavorable

Favorable

Favorable

Culture

Unfavorable


Assessing policy

Assessing Policy

A Typology of Public Policy toward Sm. Bus.

Impediments

High

Low

High

Direct Assistance

Low


Policy options

Policy Options

A Typology of Public Policy Objectives and Means

Policy Means

Direct Assistance

Eliminate Impediments

Economic

Policy Objective

Social


The american approach a competition not an entrepreneurship or sme policy

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 growth of social and environmental regulation


Why a competition not an entrepren eurship or small business policy

Why a competition, not an entrepren- eurship 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).


Why a competition not an entrepreneur ship or small business policy cont

Why a competition, not an entrepreneur- ship 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 non-

      employing 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 non-employing/nascent businesses. Contrast – 59% ask an accountant for advice, 39% a lawyer, 29% a banker, etc.


Impact of competition

Impact of Competition

Step 1

Exits

Entry

Competition

Incumbent

Entry

Competition

Incumbent

Exits


Impact of competition1

Impact of Competition

Step 2

Exits

Entry

Competition

Incumbent

Entry

Competition

Incumbent

Exits


Major areas of economic deregulation in the united states

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.


Major areas partially deregulated

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


Major areas not yet deregulated

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!


Financial deregulation helping entrepreneurs as consumers too

Financial Deregulation Helping Entrepreneurs as Consumers, Too

  • Deregulation of Banking

  • “Prudent-Man” Rule

  • Credit Scoring

  • Securitization

  • "Junk Bonds"


Number of fdic insured community banks 1985 2003

Number of FDIC-Insured Community Banks, 1985-2003


Change in competition for small business s banking business

Change in Competition for Small Business’s Banking Business


Equity capital

Equity Capital


Moderating tax rates highest federal marginal income tax rate by year

Moderating Tax Rates: Highest Federal Marginal Income Tax Rate by Year


Taxes salient issues

Taxes – Salient Issues

  • Graduated Corporate Income Tax

  • Expensing

  • Capital Gains – special treatment

  • R&D, R&E tax credits

  • State preferences

  • Taxation of Internet sales


Novel approaches to small firms

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 of both


Traditional direct assistance

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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