The War on Small Business

By: Carl | July 19, 2010, 9:22 am

So we’ve got financial reform now. Boy we really stuck it to those big banks. Never mind that they were lobbying in favor of the bill that passed and gave tens of millions of dollars to the politicians who supported it. I’m sure we’re sticking it to them.

And we got health care reform. Boy we really stuck it to Pharma and big insurance. Never mind that Pharma spent (and is spending) hundreds of millions of dollars lobbying for, advertising in favor of, and supporting candidates who supported the reform bill. And never mind that big insurance (and AARP, one of the biggest health insurance providers in the country) lobbied for and supported it once they got their guaranteed customer pool through mandates. And never mind that big businesses like Walmart supported it from the beginning knowing full well that paying for employee insurance and doing all that paperwork will be way more expensive for those annoying small town competitors than it will be for huge corporations like them. But I’m sure we’re sticking it to them now.

And we’re working on cap-and-trade. Boy we’ll really stick it to those energy companies. Never mind that BP and other oil companies were early and avid supporters of taxing themselves and then getting massive subsidies for more expensive and more profitible renewable energy schemes. And never mind that AIG, the Chicago Board of Trade and others have billions of dollars tied up in energy credit trading. And of course never mind that little mom and pop outfits like GE and many more multi-billion dollar corporations have invested millions in lobbying and billions in technologies that they expect to get paid back through cap-and-trade subsidies. I’m sure we’ll really stick it to them in the end.

Yes we’re really sticking it to big business. They’re going to make billions in subsidies and bailouts, but by golly they’re not going to be able to dupe people into borrowing more than they can afford or into buying insurance that fits their individual needs instead of everyone else’s, on average; that is until big business is the only game in town.

Unfortunately all of these reforms come with huge paperwork and compliance costs. Small banks, even though they had nothing to do with the financial crisis, will still have to create massive amounts of reports and comply with increased capital and insurance mandates. Small businesses will have to spend billions tracking sales and purchases, as well as what they provide for employee health insurance. Big businesses can absorb this kind of overhead, but for small banks and businesses it’ll be crippling, especially when they won’t be able to pass the costs on to consumers since the big boys won’t have the same marginal costs.

What we’re seeing is the systematic elimination of small business in this country. The barriers to entry will be so high, and the cost of complying with regulation so stringent, that small businesses will be unable to make any return on their investments. Many existing businesses will simply close up shop. Community banks will retrench into niche markets and leave home loans and other products to large national chains, or just get bought up by Wall Street banks. New entrepreneurs will look at the barriers to entering the marketplace and do something else – probably get a government job since that’s virtually the only sector guaranteed to grow.

The end of this path lies in a business/government partnership where large corporations operate under the umbrella of government protection and direction. There’s a name for that, but I don’t want to be incendiary. Look to 1920s Italy for an example.

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