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Small Business: How Government Can Unleash it to Grow the Economy

Skip Schwarzman and Lynn Buono, co-owners of Feast Your Eyes Catering in Philadelphia, nearly came to grief when expanding their business in their hip, newly-renovated building. The expansion consolidated several real estate parcels, each with a different address. But the computers in the city's revenue department couldn't handle the change. The business was double-billed for taxes for more than two years, and then cited for delinquency.

"It nearly put the kibosh on our plan," says Skip. "With a citation outstanding, it's all-but-impossible to borrow money." Ultimately it took intense communications among Skip, his lawyer, city tax officials, and the city IT department to correct the problem.

Many small businesses owners across the United States share similar woes. They're poised to open their doors or poised to expand. They're ready to hire more people, create good jobs with benefits, and inject cash into their community. But they're stymied by permitting, inspections, fees, tax errors, and other challenges.

Well-crafted regulations are essential for protecting the consumers, employees, and the public at large. But some regulations are outdated or poorly written or arbitrarily enforced. Some government processes don't work as intended. We need to fix these problems so small business can lead the way to a vibrant new economy.

Skip Schwarzman and Lynn Buono, co-owners of Feast Your Eyes Catering by Daniel ColavitoThe economy can't grow unless small business grows. Small businesses created more than 65 percent of the net new jobs in the private sector, according to data from the U.S. Small Business Administration. But even this figure understates the true importance of small business to the economy. Many large high-growth businesses grow by acquiring smaller business. (For example, Google has acquired over 100 companies to sustain its growth; Cisco bought more than 140.) Moreover, as large corporations downsize and outsource, many former employees become independent contractors and sole proprietors rather than seek new corporate jobs.

New Rules to Support a New Economy

Small businesses owners are working closely with government officials to remove obstacles and improve the business climate. Often these efforts are led by a new breed of business organization dedicated to supporting sustainable, local economies. These groups, such as Sustainable Business Network of Greater Philadelphia share ideas and best practices through the Business Alliance of Local Living Economies, which has its annual conference this week in Grand Rapids, Mich.

These networks of small and sustainable businesses have found that business regulations, zoning, and codes have not kept up with innovation. The regulations need updating. For example, existing restaurant codes were not designed for gourmet food trucks. Existing construction codes hamper rooftop solar energy and greywater recycling. Existing rules that restrict businesses in residential areas don't recognize the growth of small-scale home-based business. Existing agricultural rules don't support the "Farm to Table" movement that brings fresh, locally grown produce to homes and restaurants. Rules like these need to be updated to provide necessary safeguards without impeding innovation.

Streamlining and Simplifying Regulations and Government Processes

Many small businesses must paddle upstream, against the current and around rocks, snags, and other obstacles. The obstacles consist of outmoded rules, poorly designed regulations, obsolete computer systems, and government agencies that don't coordinate with one another. Fortunately, however, the problems can often be fixed in ways that don't require much money and which preserve vital safeguards that protect the public.

We need to improve transparency, communications, and responsiveness between government and business. Many government departments require small business owners to stand in line at City Hall for permits, etc.  However, the task at hand could easily be completed over the Internet. Business owners are expected to offer live testimony in regulatory hearings when they could easily submit comments online. City procurement processes are often cumbersome and skewed toward insiders with political connections. Business owners are whipsawed by contradictory orders from departments that need to rationalize their policies and processes. For example, the health department inspector tells the business owner to put the sink in one location; the building department wants the sink moved somewhere else. Who can adjudicate?

Some cities have launched innovative technology solutions to address issues like these. For example, New York has an interactive web-based platform on which proposed rules and regulations are posted and comments can be made. Phoenix has an E-mail system that broadcasts contracting opportunities under $50,000 to locally owned businesses.  Other cities need to follow suit.

Focus on Real, Proven Needs of Small Business

Efforts to create a better climate for small and sustainable business can easily get caught up in partisan politics, particularly where tax codes and regulations are involved. To minimize that hazard, it's important to be objective in mapping the improvements that could unleash the potential of small business. The voices of small, local businesses, government agencies, lenders, and the service providers are essential to the conversation about what small businesses need to flourish. For example, the Sustainable Business Network of Greater Philadelphia recently studied the needs of small businesses and recommended nine solutions through its report, Taking Care of Business: Improving Philadelphia's Small Business Climate.

In conclusion, small business has historically led most of the job growth in the United States. A vibrant small business sector will propel us toward stronger employment and a vigorous economy. But first, we must complete some important clean-up work.

May 17, 2012

(A version of this was posted earlier at