Small Businesses: Too Big To Fail

Companies that are “too big to fail” have been getting most attention in the bailout packages emerging from the federal government. But in the economic recovery plan now being considered by Congress and the incoming Obama Administration, the focus should be on small businesses.

While the Big Three have been the latest squeaky wheels to get greased by billions of dollars in taxpayer bailout money, small businesses are the real engine of job creation and innovation in the U.S. economy. With a little bit of help, they will be the locomotive that pulls us into the new energy economy of the 21st century.

The US Small Business Administration (SBA) defines small companies as those with fewer than 500 employees. If there are any doubts about their influence on the economy, consider these statistics from the SBA and the U.S. Census:

• Small companies comprise 99.7 percent of all firms with employees in the United States. As of 2004, nearly 7 million small businesses were operating in our economy, employing nearly 60 million workers.
• Small businesses provide half of the jobs in the United States and pay 45 percent of the nation’s private wages. Their total payroll approached $2 trillion in 2004.
• Over the past decade, small companies have created as much as 80 percent of net new jobs in the U.S. economy each year.
• They hire 40 percent of our high-tech workers and produce 13 times more patents per employee than large firms.

The tight credit market, toxic mortgages and lower sales are hurting these companies, as we might expect. Of special concern to the goal of building a new energy economy in the U.S. are business engaged in green industries, including renewable energy, energy efficiency and sustainable buildings. They have been fast-growing sectors of the domestic and global economies in recent years.  Just a few months ago, renewable energy industries were considered recession-proof.

But as 2008 came to a close, alternative energy stocks were among those being battered by the economic crisis. In a year-end assessment, the Associated Press reports that stocks are taking a beating and credit markets have tightened for biofuels, wind and solar power, despite the federal biofuels standard and the extension of $17 billion in federal tax credits for solar and wind development.

The green building sector – ranging from real-estate developers to landlords hoping to improve the energy efficiency of their buildings – is handicapped by tight credit and deferred investments.

The AP quotes a prediction from Joseph Muscat, Ernst & Young's Americas director of cleantech and venture capital, that the renewable energy sector will be “the first to emerge when the market stabilizes”.  Making that prediction come true should be a key objective of the next economic recovery package. It should help small businesses in the green sector not only survive the financial crisis, but come out of it stronger than ever to capture their share of the domestic and global green markets.

In addition to getting capital moving again and creating jobs through green infrastructure investments, Congress and the new Administration should strengthen and green the SBA. The SBA is the nation’s principal source of federal aid for small companies, but it traditionally has been a bureaucracy without much status. Its leaders too often have been appointed because of their political connections rather than their business expertise.