Guest Post: Why Small Business Isn't Hiring And Won't Be Hiring

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Why Small Business Isn't Hiring and Won't Be Hiring

Pundits and politicos promote a magical myth: a coming small business hiring boom. That fantasy is completely disconnected from the harsh realities of private enterprise.

Regardless of their ideological persuasion, pundits and politicos reliably repeat the mantra that "small business is the engine of jobs growth." The mantra is followed by the pundit-politico's belief that a "small business jobs boom is right around the corner."

I have news for the pundits and politicos: ain't gonna happen.
Why? The answer cannot be found in the manipulated and massaged Bureau of Labor Statistics numbers (have any real jobs been created, net of jobs lost, in the past year? Who knows?) or in the punditry's Cargo-Cult-like belief in a mythical "small business jobs machine" that they have never experienced and know nothing about.

While a handful of the new crop of politicos are entrepreneurs, most Washington denizens are attorneys, the offspring of wealthy or politically connected families or people who have lived off the government at some level their entire lives. Most have never had a customer or client or had to borrow off a credit card to make payroll. (I have; any pundits who can honestly raise their hands for that one?)

Pundits come in two flavors: the academics, happily making mud pies in the moat surrounding their secure Ivory Tower, and the loud-mouths who have screeched louder and longer than the other media-monkeys. All know less than zero about actual small business.

To understand why small business isn't hiring and won't be hiring, you need to understand the psychology of this era and the systemic pressures on all small businesses which don't live off Federal government contracts. In a very powerful sense, those businesses which live from one government contract to the next are not private businesses at all: they are merely proxies or extensions of the government. Their non-governmental work is either trivial or non-existent.

So when some government set-aside program sanctions $40 million or whatever for "small business," it's no different than opening another government office: the only difference is the employees are not Civil Service. The competition is not between private-sector and government, it's only between rival government contractors.

What pundits and politicos don't get is small business knows the "recovery" is totally bogus. Why hire somebody who you'll have to lay off a few months from now? Laying people off is emotionally painful--you dread it, tire of it, are wearied by it. This is a real human being who is losing their job, not some ginned-up statistic hyped by some think-tank-pundit pulling down $15K a month for dishing whatever flavor of propaganda he/she is paid to churn out.

The Washington establishment--the Fed, the Treasury, Congress, the Obama Administration-- seem to believe they've successfully pulled the propaganda wool over Americans' eyes, and that the yokels actually believe "things are getting better and better every day and in every way."

Only the yokels without clients, customers and payrolls can believe the propaganda.

Meanwhile, back in the real world, small business income is down 5%. Small Business: Still Waiting for Recovery.

According to data from the Bureau of Economic Analysis. Proprietors' income-- the profits of unincorporated businesses such as partnerships or individuals who work for themselves--is down nearly 5 percent from two years ago, while corporate profits have jumped 21 percent in that period.

About 19.9 million partnerships and sole proprietorships with no employees existed in 2008, the latest year for which U.S. Census Bureau data are available. That number fell almost 2 percent from the previous year.

In a private-sector workforce of about 106 million, that's about 19% of all people with a job. Recall that the BLS counts you as employed if you work one hour a week or if you're "self-employed," even if you aren't making a dime.

Only in the Fantasyland of propaganda does nobody notice that self-employed people who are seeing revenues and profits fall do not need to hire someone: they're sinking all on their own.

Only in the Fantasyland of propaganda does nobody seem to notice that for every celebrity-chef restaurant opening to gushing hype in Manahattan, West L.A. or San Francisco, two other restaurants quietly closed.

Small business understands uncertainty is now permanent. That's why 26% of all new private-sector hires are temporary--and if we subtract the bogus phantom jobs created by the BLS "birth-death model," then the number is probably more like a third or even half.

Small business understands that the "recovery" is merely a Federal towel stuffed in the gaping hole in the rowboat's leaky planks, and that it's literally insane to hire workers when your revenues could evaporate next month.

Small business re-discovered it could do more with less. Once businesses trimmed payrolls to survive, they discovered they could make more money for themselves and do so with fewer people. Why add to staff when all that means is transferring your own paycheck to someone else?

Small businesses are closing, not opening. Rents have barely dipped, local government taxes and junk fees have skyrocketed, and the complexities and costs of the new healthcare bill have all added systemic pressures on every small business: it's either adapt quickly and successfully or perish, and many are choosing to close down and quit working so hard for so little payoff.

When leases expire, the doors close, and no one leaps in to pay boomtime-level rents, and heavy business licence and permit fees. The only people insane enough to hire anyone are three guys working in a living room somewhere, trying to hire a few Javascript programmers to finish their app so they can cash out by selling the "company" to some larger enterprise.

The programmers are independent contractors who have to take care of their own healthcare and taxes, or they're young and single so the healthcare insurance costs are modest--if they even bother with buying insurance.

Nobody's hiring for the long-term for the simple reason that there is no long-term: we're either selling the company as soon as we can, or we're waiting for the next dip in revenues to close down before we lose everything.

Local government has grown accustomed to small business being uncomplaining tax-donkeys, silently paying every junk fee and every additional tax the government levies. Only a funny thing happened on the way to local government's plan to fill the shortfalls in its own revenues by taxing small businesses even more: they're closing down.

The reason is simple: why work for free? This is incomprehensible to both local governments, who expect all those "filthy-rich small-business Capitalists" to pay higher taxes and fees, and the safely remote-from-the-real-world pundits and politicos.

These members of the academia-think-tank-media-politico Cargo Cult have a magical belief in a mythical "small business" which is anxious to get out there and create new jobs because "to get rich is glorious," as if "getting rich" is even an option for 90% of real small businesses.

In the real world, small businesses aren't getting rich, they're going broke and closing down to save whatever remains of their sanity and assets. You want high-tech and "clean energy" jobs? Well, how about MySpace laying off half its 1,000-person staff? How about Evergreen Solar closing its Devens, MA plant, laying off 800 workers and moving production to China? Did the pundits honestly think that globalization was over?

Memo to pundits and politicos: you worship at the altar of Capitalist profits driving small business--get real. People will do whatever they have to in order not to go broke.

That's why the three guys or gals aren't renting an office--who needs the overhead? They also don't have health insurance: who can afford $1,000 a month for crappy, confusing "care" young people rarely even need? Better to pay cash.

And they aren't hiring "employees": they're paying their friends with equity shares, or cash, and paying their own taxes is up to each free-lancer.

That is the new model of American entrepreneurship: no office, no overhead, no employees, no health insurance, no business travel. That's the only way any new enterprise can survive.

Everyone who buys into the myth and pays absurdly high rents, junk fees and healthcare insurance will be ground down and bled dry. The only exception are those well-connected enough to run a pipe into the limitless lake of Federal money. Yes, 40% of the lake is borrowed from our kids, but no matter--the "recovery" is real, and this stone with a crudely painted radio dial is in fact a working radio. It's magic. You just have to believe.

Small business can't afford to believe in myths and fantasies. They are dealing with the harsh reality of adapt or die.

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The Axe's picture

That 2yr is moving towards.80  wow big move

whatz that smell's picture

 

"giant sucking sound"

 

Pee Wee's picture

Wake me when US Federal taxes are abolished on small business.  Not the gimmick of spend a penny match a penny -- taxes.

Personally, I can attest that a thriving business with 12 FTE's cannot hire an additional simply because of taxes.  The number is 1 in 10 literally with businesses waiting to pull the trigger on growth but are tax-prohibited.

SheepDog-One's picture

TBTF gets govt free money handouts, small businesses do not, therefore small biz has to deal with the reality that the economy sucks and cant hire.

TorchFire's picture

SheepDog are you for real or are you a government tool?  Why would such a sensible comment have 3 junks so far?  Junked by tools or junking a tool? 

The best statement in the article is this: People will do what they have to do to maintain their incomes.  In that sense capitilism is alive and well in the laboratories of small business. Bravo to any who can prosper while escaping the death grip of the oppressive regulations and taxes. The "Machine" has taken both sides of the regulation afgument and they exploit the hell out of it, so research and understand the dynamics of reasonable regulation as opposed to oppressive bullshit.

sgt_doom's picture

Negative, TourchFire, you are confusing free enterprise and economic democracy with predatory capitalism, which will be R.I.P. by the end of 2012.

Predatory capitalism is self-destructive and in its final days.

And this is an awesome blog post.

The greatest driver for employment in the USA over the past 30 years has been business startups, and since the banksters and Korporate AmeriKa have been only doing startups in foreign lands with their FDI, and utilizing taxpayer funds with OPIC and USAID, etc., the future is doomed.

Rusty Shorts's picture

This Is Why There Are No Jobs in America

I’d like to make you a business offer.
 
Seriously. This is a real offer. In fact, you really can’t turn me down, as you’ll come to understand in a moment…
 
Here’s the deal. You’re going to start a business or expand the one you’ve got now. It doesn’t really matter what you do or what you’re going to do. I’ll partner with you no matter what business you’re in – as long as it’s legal.
 
But I can’t give you any capital – you have to come up with that on your own. I won’t give you any labor – that’s definitely up to you. What I will do, however, is demand you follow all sorts of rules about what products and services you can offer, how much (and how often) you pay your employees, and where and when you’re allowed to operate your business. That’s my role in the affair: to tell you what to do.
 
Now in return for my rules, I’m going to take roughly half of whatever you make in the business each year. Half seems fair, doesn’t it? I think so. Of course, that’s half of your profits.
 
You’re also going to have to pay me about 12% of whatever you decide to pay your employees because you’ve got to cover my expenses for promulgating all of the rules about who you can employ, when, where, and how. Come on, you’re my partner. It’s only “fair.”
 
Now… after you’ve put your hard-earned savings at risk to start this business, and after you’ve worked hard at it for a few decades (paying me my 50% or a bit more along the way each year), you might decide you’d like to cash out – to finally live the good life.
 
Whether or not this is “fair” – some people never can afford to retire – is a different argument. As your partner, I’m happy for you to sell whenever you’d like… because our agreement says, if you sell, you have to pay me an additional 20% of whatever the capitalized value of the business is at that time.
 
I know… I know… you put up all the original capital. You took all the risks. You put in all of the labor. That’s all true. But I’ve done my part, too. I’ve collected 50% of the profits each year. And I’ve always come up with more rules for you to follow each year. Therefore, I deserve another, final 20% slice of the business.
 
Oh… and one more thing…
 
Even after you’ve sold the business and paid all of my fees… I’d recommend buying lots of life insurance. You see, even after you’ve been retired for years, when you die, you’ll have to pay me 50% of whatever your estate is worth.
 
After all, I’ve got lots of partners and not all of them are as successful as you and your family. We don’t think it’s “fair” for your kids to have such a big advantage. But if you buy enough life insurance, you can finance this expense for your children.
 
All in all, if you’re a very successful entrepreneur… if you’re one of the rare, lucky, and hard-working people who can create a new company, employ lots of people, and satisfy the public… you’ll end up paying me more than 75% of your income over your life. Thanks so much.
 
I’m sure you’ll think my offer is reasonable and happily partner with me… but it doesn’t really matter how you feel about it because if you ever try to stiff me – or cheat me on any of my fees or rules – I’ll break down your door in the middle of the night, threaten you and your family with heavy, automatic weapons, and throw you in jail.
 
That’s how civil society is supposed to work, right? This is Amerika, isn’t it?
 
That’s the offer Amerika gives its entrepreneurs. And the idiots in Washington wonder why there are no new jobs…
 
Regards,
 
Porter Stansberry

Yes We Can. But Lets Not.'s picture

Sadly true, completely fucked up, depressing.

Popo's picture

Actually, it's worse than that. We all have TWO partners. One is Uncle Sam, and another is the State.

When I sold my business, which I started for a few hundred bucks and about 7 years of ass-busting hard work, I gave 20% to Uncle Sam and another 10% to my lovely state govt.

Thanks for all the help partners!

Devout Republican's picture

Your welcome for all the roads your customers drove on to get to your store.

Your welcome for the roads your employees drive on to deliver your goods.

Your welcome for the police that come to bust the criminals who steal from your store.

Your welcome for the judicial system that arbitrates your grievances with your suppliers.

Your welcome for providing food stamps to your employees since you're probably to cheap to pay them a living wage. (Not you of course, I'm sure YOU paid your employees into the six figures, thats just the kind of guy you are. I'm sure of it!  Why else would you be here on ZH!)

 

New_Meat's picture

Your welcome for surviving several years (still publicly indeterminate) is that, evidently, when they were teaching multi-cultural English, you skipped the dreaded "contractions is us" class.

Usury (beyond TRAV7777's well-taken view) was like > 1%/month (and the olden folks hadn't figured out the miracle of compounding interest).

But, well, gee, don't we pay gasoline taxes?  (should take care of roads).  I pay local taxes, takes care of No. 3.  Judicial system?  State taxes cover this.

Food stamps?  Dang, didn't the 'minimum wage' keep all of those folks from getting hired in the first place.  Thus driving them into the "Auntie Zietunie Card" zone -- Food stamps are so quaint.

Which brings us back to Usury.  Even here, (MA) with a sales tax of 6.25% (didn't enter into your discussion, did it?) the Federal Income tax is, let's say 15%, state at 5.25%.  <getting my calculator> Oh, that is 20.25%.  Good thing there is separation of Church and State, otherwise the government would be considered as Blasphemers and the government employees would be relegated to the status of money lenders.

- Ned

Devout Republican's picture

YOU LIE!

It's okay "your" a con, so you couldn't help yourself.

http://www.worldchanging.com/archives/008264.html

New_Meat's picture

I know you have Dep't of Educat'in educat'in, only, but many have been able to overcome this failure.  Why, way back when, when the Democrats made it a death sentence to teach a slave to read, many slaves and former slaves got into the way of readin'.

Your weak-assed link?  We'll let DosZap answer to this moonbattery.  Dos?  You up for the challenge?

Up here in snowy MA, we have Bawney Fwank and a Turnpike that has been paid for like 3 or 4 times over with the "bonds" that fund the "road."  Demo Tessicans (vs. real Texans) have proposed the road-mile tax (with intrusive GPS measuring) for a while. 

I'm a'guessin' that you are within a couple of km from Austin.

- Ned

(and any specifics you have on my "LIE" please let me know.  I'm always open to a vigorous figh ... er ... conversation to correct my misguided thinking)

((extra credit--describe the advantages and disadvantages of the argument "ad hominum".  Aristotle will help u).

(((extra extra comment--I hope this gets your grade up from a "C-")))

Blano's picture

Popo paid for those too as he went along, dumbass.

ILikeBoats's picture

Moronic answer ...

Fuel taxes more than pay for roads; in fact the surplus is usually stolen by the states. 

Police and judicial system - paid for by property taxes, not income taxes.

Food stamps - wages are, what they are... and if you assume 40 hours per week * $8/hour, they won't be getting SNAP anyways, from what my math indicates.

New_Meat's picture

I'm double answering you, since, on reflection, I'm thinkin' that ol' Cas gonna' be displeased with this newbie, weak assed response.  Time for you to head back for six month's of 're-education camp.'

Maybe you'll learn to build several, not so many, but a couple of, English contractions.  It'll make u feel so gud.

- Ned

Devout Republican's picture

Not my first language; so your mouth can bite me at.

Michael's picture

Small businesses producing consumer toys and hiring people are impossible to get started in the USA. The US can't compete with the virtually free labor of China and India. There will be no long term increase in employment without the consumer goods manufacturing sector coming back. The real 22.5% unemployment rate keeps the unemployed from driving back and forth to work every day and tooling about shopping for trinkets and baubles. Fix the consumer goods manufacturing sector and the unemployment problem gets fixed. Otherwise, nada.

Hard1's picture

The reason for the policy response (aka FED printing), is for you to borrow and pay with this limitless cheap money for the stuff made in China and India with their limitless cheap workforce.  The policy is aimed to consume not produce...why bother fighting it.

Things that go bump's picture

That may be so, but I don't want that cheap stuff. 

1984's picture

"The policy is aimed to consume not produce..."

 

It's not limited to FED policy but the entire US economic policy.  Fix that and you fix the economy, not to mention the environmental issues.

sethstorm's picture

Not unless the US is willing to put forth an ultimatum to create work here in the US for US citizens.

Interesting that the people that don't want to hire are the same ones complaining about the high unemployment rate.

ReallySparky's picture

Darn it Rusty.  That was beautiful. 

pan-the-ist's picture

. < worlds smallest violin playing for the beaten down small businessman who's business plan was a failure.

"It's always someone else's fault."

You know the rules when you signed up to play the game...  keep the lead out of my toys, thanks, and please pay your workers on time.

Michael's picture

I just thank God every day for the complete and total economic collapse of the USA that is now a mathematical certainty.

SamuelMaverick's picture

Spot on. Well said. I am a self employed business owner, and my brother is also a small business owner.  Neither of us will hire an employee under any circumstance, even if the  economy was improving or even just steady.  Here is why; the local, state, and Fed governments are out of their fucking minds with rules, regulations, fines, direct and indirect ( hidden ) taxes.  Hiring an employee is almost a form of self destruction where you are forced to provide guarantees to the employee and the state to provide for their well being.  OSHA, Labor dept, DOT, Workers Comp., Unemployment, Health Care rules for Cobra, retirement , EPA, Dept. of Environmental Conservation, IRS, State Taxation, etc. etc. and fuck all of that bullshit. Been there, done that, will not do it again.  This article describes myself and almost all the self employed people that I know to perfection. When help is needed, hire other self employed guys and gals, 1099 them and you are done. Keep overhead to an absolute minimum.   Yours, Maverick

sethstorm's picture

So you want to create de facto indentured servitude a la the 1099. 

But if you want to attract the attention of a bureaucrat, keep on doing what you're doing.

Id fight Gandhi's picture

The 99ers (jobless for 99 weeks) are becoming the 1099ers.

serotonindumptruck's picture

Did you know that the Internal Revenue Service has their very own enforcement arm? I read an article in SigArms Quarterly about 15 years ago that quantified and itemized the different federal and state agencies whose agents/officers are authorized to carry firearms. The IRS was definitely on that list. Apparently, IRS agents prefer the Sig Sauer P220 in .45 ACP.

Granted, when the tax collector sends in the SWAT team, the US Marshall Service, the FBI, BATF, and other elements from Homeland Security will be present.

StychoKiller's picture

Sounds like a great party! BYOG (Bring Your Own Goons!)

GreenSideUp's picture

Wow, really?  

Those who work for me ala the 1099 do so voluntarily.  

Btw, eff the bureaucrats.  They and their bankster buddies created this monster.  

Fearless Rick's picture

Could not have said it better myself. The regulations are like working in a prison. I work from home, screw driving to and from, "managing" people, and all that rot. I make it or break it on my own and the govt. gets what I give them, which is usually not much.

The path for America after the great collapse (ongoing) is for cottage industries to crop up such as in colonial times. Butcher, baker, candlestick-maker, in local economies where money is spent through other local businesses, not heading out to a corporate coffer.

Stop eating at McDonald's and shopping at Wal-Mart is a good start. Making deals with deadbeats on food stamps (it's currency, after all) works too.

sushi's picture

Great Post !!

I think the best opportunity is to open a bank, collect from your depositors and stash that money somewhere safe offshore, then fail the bank, collect a bonus payment from the Feds and then go enjoy your "savings."

It is possible that this market segment is already fully populated but what the heck. It is the only shot worth taking.

sgt_doom's picture

Wow, thanks Rusty.

So that's why over 70% of American-based multinationals and corporations pay no federal taxes.

So that's why GE (and so many others) paid no federal taxes in 2009, but received over $150 million in tax return monies from the US gov't.

So that's why JPMorgan Chase created the credit default swap, and that's why the 5 enemies of the state (JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citi and BofA) control the credit derivatives market.

Gee whiz, I'm glad you explained everything Rusty.  You're sooooo wise.

Say, where were you when they created the SIV over at Citi?

Popo's picture

Look up. See that thing flying over your head?

Yeah, that thing. That thing up there is called "the point" and well, you missed it.

NotApplicable's picture

Yes, but he did it in such a grand fashion!

After all, it takes a certain flair to confuse multi-nationals with small businesses.

StychoKiller's picture

After all, it takes a certain flair to confuse multi-nationals with small businesses.

 

What are you goin' on about?  The Govt does this ALL the time!

margaris's picture

thanks for this text, I copypaste it, to read it again sometime....

Devout Republican's picture

If it's so bad in the US, then don't start a company.

You can always collect welfare and get driven around in a limo. Right?

Since we're now in a global economy, you can go start your multi-hundred dollar business in the great libertarian state of Somalia. Bye!

StychoKiller's picture

You can always collect welfare and get driven around in a limo. Right?

So, now that you've admitted the reason for the high unemployment rate, I'm guessing you feel even more righteous (good luck wit dat!)

Husk-Erzulie's picture

Nice Rusty, you forgot though...break down the door and shoot the dog.

Calculated_Risk's picture

 

Dear Mr. Stansberry,

As you’re original, much richer and powerful "partner", it is ill advisable you proceed with your new partner because it is in direct competition with our industry. However, if you feel it absolutely necessary to proceed, we advise that you institute more "regulations" (provided by our attorneys) as to make it nearly impossible, if not illegal for new competitors.

Sincerely,

The "Free" Market

 

1000DOLLARsilvercrushthefeds's picture

Well said. Well done. By the way people, my business is now closed, and he isnt kidding about the heavy automatic weapons. He is wrong about the middle of the night though , They come at first light of day.

Pee Wee's picture

Excellent example describing the context of the current system.

Lost My Shorts's picture

By the way, what is your address?  Because the lot next door is probably a great place to open a three-story McDonalds with 24-hour drive through.  And I won't need employee restrooms, because you have so many nice bushes !!  No #$%&* is gonna tell me where and how to operate my business.  I am sure you are cool with that.

Let them all fail's picture

Hmmmm....I think you've missed the point....

Let them all fail's picture

Maybe if you put this into a cartoon people would understand it better...anyways, well put...all those taxes and still we have $14 trillion in debt.  As the author states, it is obvious that our gov't hasn't run a business, though if they had, it would be BK like we are...