Posted on January 30, 2009

Now that the street cleaners have finally swept up the signs, flags, confetti and other debris left by the millions who came for the inaugural last week, we can finally return to the critical issues of policy. I'm pleased to report that the Obama Transition Team asked us to join their teams working on sustainable business and socially responsible investment. What will become of our recommendations, I don't know, but the fact we were invited to share our view – and that key policymakers in the administration were listening – represented a huge sea-change.

Below is the memo we submitted, incorporating many of the points you've seen on this blog over the past six months. We welcome your input. Let us know what you think, and what else you would add to this wish list.

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A credible "jolt" for the U.S. economy requires, first and foremost, boosting small businesses. Small businesses make up roughly half the private economy and create 60-80 percent of all new jobs.

Moreover, the locally owned character of nearly all small businesses makes them better contributors to community and economic development than most large businesses are. Because locally owned businesses spend substantially more money locally, they typically generate two to four times the economic multiplier benefit for their communities as do nonlocal businesses. A growing literature shows that local businesses are also more reliable promoters of tourism, social equality, entrepreneurship, carbon-dioxide reductions, political participation, and "creative economy" benefits.

Given this, we recommend that the Obama Administration appoint a blue ribbon commission charged with identifying public policy obstacles to the expansion of local and small business, and laying out new, low-cost opportunities for the federal government to expand local business. Here are some of the low-hanging-fruit possibilities we believe such a commission would highlight.

• Balance Federal Support for Small Business – We believe there is a need to overhaul a wide range of programs giving grants, loans, loan guarantees, tax breaks, and other special benefits to business, since nearly all these programs are tilted toward larger business, and thereby place small business at a competitive disadvantage. It should be a high priority of the Obama Administration to end federal subsidies that favor centralized electrical generation stations over micropower and efficiency, centralized fossil fuels over decentralized renewables, factory over family farms, large-scale manufacturing over microbusiness. The tilt of the current and proposed stimulus programs, including those labeled "Green," ought to be reset accordingly. For example, at least half of all funds given to troubled financial institutions should go to small community banks and credit unions.

 

• Revise Subsidy Procedures – For business subsidies that remain, uniform procedures should be developed to make these programs more accountable and ensure local businesses have a fair shot at competing for them. These rules should also include: a) uniform, web-based public disclosure requirements that indicate how much beneficiary companies received, how many jobs were produced for how many years, and b) clawback provisions for companies that fail to fulfill their promises. (A full elaboration of these ideas is at the Good Jobs First website.)

 

• Enact Securities Reform – While there is a clear need for greater regulatory oversight of large-scale financial institutions, there is actually a need for less oversight of smaller ones. For these smaller institutions, the existing regulatory regime has essentially wiped out small-business stock issues. We recommend the Securities and Exchange Commission (SEC) consider excluding from regulation all small securities (<$100) that link unaccredited investors with microbusinesses and all intrastate stock exchanges that trade such securities. This would enormously boost the availability of local capital to start and expand local businesses with the greatest economic development potential. It will also free up SEC resources to focus on bigger institutions like hedge funds that have been under regulated. Additional reforms should make it easier for cooperatives, mutual funds, and retirement funds to invest in microbusiness. To speed these reforms, one home-run policy to implement is a tax credit for any individual investment in microbusiness. Your campaign policy papers argued for a 20 percent credit for investments up to $50,000 in rural microbusinesses, and we encourage you to extend this credit to all microbusinesses, rural and urban.

 

• Provide Better Data – Federal agencies should begin providing better data on inflows and outflows of goods, services, finance, and workers. This can empower agencies to construct economic development policies that plug significant economic "leaks." They also should provide more web-based tools, free of charge, for citizens to gather data on businesses in their community and calculate the multiplier impacts from changes in their universe of business. More collection of data on emerging home-based businesses would also be useful.

 

• Switch to Selective Procurement – An executive order should mandate federal procurement preferences for purchasing from local, small businesses in order to fairly account for their higher economic development multipliers. The goal should be for local business to provide roughly half of all federal procurement, consistent with the sector's overall presence in the economy.

 

• Enact Micropower Reforms – The federal government should mandate that all electrical utilities implement a feed-in tariff like many European countries enjoy. Feed-in tariffs would provide long-term contracts to small-scale power producers at a price greater than the marginal cost of centralized power stations.

 

• Carry Out Tax Reforms – Tax loopholes that favor global and interstate companies should be eliminated. U.S. companies should no longer receive a tax credit for taxes paid overseas. Loopholes that allow companies with subsidiaries to evade income taxes should be closed. A new regime needs to be implemented federally to eliminate the ability of web-based sellers to circumvent sales taxes.

 

• Federalism – Declarations should be made at the executive branch level – and ultimately at the congressional level – that experimentation at state and local levels on behalf of local businesses is not only permissible but encouraged. For example, efforts by states and communities to impose nondiscriminatory taxes on energy, pollution, and carbon should be declared as consistent with the constitutional principles of interstate commerce. This would remove a major disincentive states and localities currently have to experiment with green taxation.

 

• Revise Trade Agreements – Existing trade agreements need to be revised and new trade agreements enacted that allow communities to engage in broad economic development programs to support local business, to buy and invest locally, and to enact their own high labor and environmental standards (providing they are nondiscriminatory).

We are keenly aware that in an era of fiscal crisis, there is a strong presumption against programs that cost more money. It is therefore worth noting that nearly all these policies require little or no outlays of federal funds – most, in fact, save the government money. The one exception, the proposed tax credit for microbusiness, might well be revenue positive as new, more efficient businesses launch, pay wages, pump up community multipliers, and pay taxes.

Most of the proposals we have put forward can be considered "trimtabs," or very modest changes in marketplace rules that can lead to an enormous difference in investor, consumer, and business behavior. Such policies are not only achievable, but also achievable quickly and with bipartisan support.

By Michael H. Shuman