Whiting column: It’s in our best interests to facilitate entrepreneurship
Entrepreneurs are the backbone of our economic system.
History, statistics and results indicate our economic system has out-performed all others in its nearly 250-year existence. Our system excels in employment and income generation, standard of living, providing opportunity, incentivizing innovation and hard work. It facilitates universal education, national defense, public safety, and domestic and international benevolent actions.
Our country facilitates entrepreneurship more than most, but it’s in our best interests to do more. Promotion would include facilitating ease of establishment, facilitating domestic and international markets, and reducing the burden of additional taxes and inessential regulations that require costly implementation.
Entrepreneurship is the most efficient source of new jobs. They are 99.7 percent of all employers and in 2016 generated 67 percent of new jobs. They are the most common source of our “first” employment experience and the fastest growing women’s career choice. New job generation provides the economic genesis for recovery from inevitable cyclical downturns.
New jobs are the largest and most efficient source of marginal governmental tax revenue. Entrepreneurships assure a high level of competition lowering price and increasing quality of service. The entrepreneur assures local availability of products and services.
Recent times have seen job loss due to technology, automation and low-waged foreign competition. Both governmental and private industry retraining strategies have been unsuccessful and undesired because those displaced fear their new skill or job will eventually be lost for the same reasons. The most desired, attractive and effective strategy is entrepreneurship because of the opportunity it provides and the desire to be responsible for their own success rather than dependent on the effectiveness of others.
It has become fashionable to view entrepreneurs in a negative fashion because it’s perceived they make an excessive amount of money. The opportunity to generate profit is the incentive factor that has made our system effective, but the risks are significant. The entrepreneur not only risks their money but their time. They aren’t earning a wage from a job, because their time is spent working to make their business successful.
Entrepreneurially, large profit is never an issue because an extraordinary amount of profit will attract another entrepreneur seeking a share of available profit. They seek market share by lowering price, which is to the benefit of both the consumer and the economy.
There can be a tendency to think all a business’s revenue turns into profit. Hardly true. Ten years ago, my students surveyed 200 people as they left downtown businesses. They asked many questions, but the one relevant to this discussion, was “If a store sells Levi’s for $40, how much profit do they make?” Sadly, the most common response was $40; the second $30.
These people weren’t aware of the number and amount of costs the store incurs. Beyond the obvious cost to purchase the Levi’s from the manufacturer, there is cost of land/building, equipment, utilities, insurance, accounting, taxes, advertising and other costs specific to a particular type of business.
In most businesses, the largest cost is employees. Many argue that the level of employee compensation is insufficient. Most employers would love to pay the employees demonstrating loyalty, skill and work ethic more, but there are significant costs far beyond wages. The true cost of an employee includes: bookkeeping, Social Security, Medicare, federal and state unemployment compensation, workman’s compensation, health insurance, vacation time, sick pay or replacement pay, uniforms, supplies and increased liability insurance. There may be retirement contributions beyond Social Security and taxes for a proposed Family Leave Act.
The hiring process itself is expensive: cost of promoting a job opening, management time spent reviewing and validating resumes, interviewing potential candidates, conducting background checks, verifying citizenship, drug tests, documenting the hiring process, training and evaluating employees. The list goes on, but the point is made.
Strategies to promote entrepreneurship should come from both the government and ourselves. We need to spend our money locally, communicate with the entrepreneur as to what we desire to purchase and minimize shoplifting losses.
Governments must reduce the number of hoops a startup must jump through while reducing paperwork, simplifying regulation, lowering startup costs and minimizing property, income, sales and other employer based taxes. Other effective strategies include providing availability of inexpensive financing, employee training and entrepreneurial career awareness and skills in high school curricula.
An often neglected strategy is denying nonprofit status to any organization competing with an entrepreneurship. Such competition decreases the profitability of the affected business. The nonprofit receives governmental services, while not paying the income taxes supporting such. Nonprofit property leaves the tax rolls. All of which necessitating higher taxes for everyone else.
Focusing legislative efforts toward entrepreneurship can be a tough sell because most can’t afford the level of campaign contributions made by corporations.
Locally, we should be thankful for the entrepreneurs that were willing to take the risks necessary to establish and expand the Hot Springs Pool, Glenwood Adventure Park, and the other locally owned businesses essential to our economic existence.
It is our personal responsibility to promote local and national entrepreneurships through personal actions and communication to our legislators.
Bryan Whiting feels most of our issues are best solved by personal responsibility and an understanding of non-partisan economics rather than by government intervention. Comments and column suggestions to: email@example.com.
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