Ethical Houston

I almost feel unpatriotic writing this piece.  Having invested in the stock market since I was fourteen and being in business myself, I believe that business should be the cornerstone of our American economy as opposed to big government being the watchdog and driver of economic well being for the average American.  But recently I have become aware of a disparity that needs discussion—the role of big business and small business in bringing our economy back to health. 

 Currently big businesses such as Microsoft, Cisco and Exxon, just to name three, are sitting on huge reserves of cash.  Needless to say with the uncertainty in financial markets in the past few years and the probability that we will see the other shoe drop again in the future, it still calls into question what companies such as these should be doing with their cash.  First of all, big companies need a lot of cash and they employee a lot of people.  But many of these companies in past years have cut back the number of employees.   But we are told that in order to get the economy back on track we need to improve employment.  We’ve lost about 7million jobs in the past few years and are limping along at less than replacement employment.  We’re told that the private sector needs to add jobs.  But where will these jobs come from?  Most large businesses cut jobs in the past recession and are reluctant to add jobs.  One reason is that there is not the demand for their products to justify those increases; which brings us back to cash.  If the cash is not to be used for growing organically, where then will growth in those companies come?  Some suggest that it will come from acquisitions and mergers.  Ignoring questions concerning anti-trust issues (you remember anti-trust don’t you), one consequence in M&A is that often by absorbing competition the acquiring company is not only able to get rid of competition but it’s also able to have a more efficient operation by combining operations which often results in loss of jobs.   Many of these companies are also outsourcing jobs to other countries further creating job loss in the U.S.  In some case the word multi-national actually means non-American. 

 In the case of the “too big to fail” banks, many of them are doing extremely well considering they have been able to borrow money for 0% and lend it out at much higher rates of interest.  This has been great for U.S. taxpayers who are hopefully getting much of their advance of funds back for helping bail them out.  But what of those smaller banks that have gone under and have been sold to bigger banks.  Again we often see that as a part of cost cutting, branches are closed or consolidated and persons laid off.  So, the big get bigger and to what end?—more service to customers? More dividends to shareholders?  More taxes to local and federal governments?  So, what’s the answer?  The proposed new bank regulations seem to indicate that the game is rigged.  In spite of all the gnashing of teeth about change, the indication is that not much substantive change will occur.  And there are many pundits that believe that within a couple of years the banking system will be back in trouble.  And pundits can’t decide whether we’re in for massive inflation or painful deflation.  My sense is that big business and big banks will do what is in the best interest of big business and big banks and if it contributes to job creation, so be it, but I wouldn’t count too heavily on them getting us out of the recession.

 We keep hearing that the answer to getting out of the current recession is the creation of new small businesses and in small business hiring more workers.  I agree.  But there’s not much encouragement for this.  Everything from local restrictions and regulation of small business, future healthcare liability, lack of availability of financing, and even cracking down on immigration policy are seen by some as hampering job creation.  In a recent poll of small business by the Biz Roundtable, a very pessimistic future was painted by those interviewed.  There just doesn’t seem to be much excitement in hiring more people even if financing is available when there doesn’t seem to be much of a market for the goods and services produced by these companies.    

 Currently there are proposals being bantered about concerning creating tax credits for hiring new workers and tax credits or accelerated depreciation for purchasing new equipment.  When these have been done in the past they seem to have had a positive impact on the economy.  Another possibility would be to have a lower effective income tax rate for small businesses.  But at the end of the day, the most important consideration for small business is the ability to get into business and to stay in compliance with the myriad of laws and regulations, both local and federal, which impedes the small business to function and to be the engine of job creation that it’s been in the past.  Add to that, small business’ often not being able to compete with big business’s ability to sell for less and the consumer’s perception that they can get it cheaper at the big box store and that it will be in business a lot longer than the small local operator, the deck seems to stacked against small business.  You may wonder what all this has to do with ethics.  For we consumers, there are some fundamental issues that we control.  Who will we support? Are we willing to support local small businesses, even when prices may be more than at the big box?  Small business needs to do its part by being more customers focused and offer something that big businesses can’t always add and that’s relationships with the customer.    Many people, particularly in smaller communities around the country are answering this question by coming down on the side of home grown businesses. They question the consequences of having the Wal Mart come into their town that undercuts local merchants that result in Main St. becoming a ghost town? In a city like Houston more often than not, we don’t have the same relationship with small businesses that are available to small town dwellers.  It’s just easier to go to the national company rather than seeking out a local business.   . 

 I believe that we should encourage people to start small businesses and for our communities to enhance the potential of these job creating engines.  So, my suggestion to us all is to support our local small businesses and support regulations that will enhance those business persons efforts. 

 What small businesses do you support?