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Do-It-Yourself Economic Growth

“Granting corporate incentives has become standard operating procedure for state and local governments across the country “ – costing taxpayers a minimum of $80 billion each year.

In early December 2012, The New York Times published a big investigative piece called “United States of Subsidies.”   According to the piece,

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

The piece has done what we – as a small, lean non-profit - couldn’t; that is, provide evidence that traditional business attraction strategies don’t work.  Businesses aren’t in business to create jobs, but to increase their bottom lines (and sometimes keeping their bottom lines from sinking further.)

The investigation lists example after example of millions in incentives to lure companies only to lose any benefit the corporations may have brought the locale when they pack up and leave.  Meanwhile states and cities lose needed tax revenue and basic services like public education and safety suffer.  The only winners are the corporations.

And it’s a zero sum game.  As a country, no new net jobs are created, they are shuffled from one place to the next. 

If we want economic development and not corporate welfare, then our economic development toolbox needs an overhaul.

A shift is needed to move from old methods that may have worked for a different economy to a new innovative, creative and flexible method that will work for today’s economy – a method that is based on creating jobs locally, one based on homegrown economies or do-it-yourself economies.

The foundation of the new economy will be a strong infrastructure of many small, locally-owned, diverse businesses. These very small businesses create all the jobs. The reality is that firms are starting smaller and staying smaller and that more people want to be their own boss. The Bureau of Labor statistics reported in March 2012 that the average size of new start-ups went from 7.6 employees in the 1990's to 4.7 employees in 2011.   And the share of the self-employed in the labor market is growing exponentially (see graph below). And the trend is expected to continue.

Just to be clear, I am not talking about the small businesses with high growth potential that receive a disproportionate amount of attention.  Only 1% of those businesses will actually scale.  Consider those companies as the skyscrapers.  These businesses give shape to an economy much as a skyscraper provides a unique character to a cityscape.  As most buildings in a city do not have dozens of floors, 99% of businesses will not grow to employ thousands, 88% of those won’t grow past five employees. 

Yes, policies and strategies that help high growth firms are good, but the attention needs to be shared with the huge majority of firms that will remain small.

We need strategies that will harness the entrepreneurial spirit of all small business cultivating homegrown local businesses.  Rather than investing our scarce resources in attracting businesses from other states or by underwriting expansion of large corporations through tax breaks, we need to support our indigenous entrepreneurial resources with what these small businesses really need – business training and management skills, small amounts of capital and access to markets.

Heidi Pickman is the Communications Director for CAMEO, California Association for Micro Enterprise Opportunity

CAMEO is the voice for Micro-business in California. We expand resources and build capacity for our member organizations – over 160 lenders, training programs, job creators, agencies and individuals dedicated to furthering Micro-business development in California.  In 2011, CAMEO members served 21,000 very small businesses with training, business and credit assistance and loans. These firms – largely start-ups with less than five employees – supported or created 37,000 new jobs in California.