The Future of Small Business

“The labor market is incredibly tight.” “There’s a widening gap between rich and poor.” “Artificial intelligence is eliminating jobs.” We can’t find people to fill open positions.”

Unless you’ve not lived under a rock, but it happens to be a rock 5G and Wi-Fi can’t get underneath, you’ve surely heard these things in the recent past, as contradictory as they may seem. Yet there’s truth to each one of these statements. But how can such seeming contradictions all hold true? 

Let’s take them one by one and think through the opposite side of what they say. 

The Tight Labor Market

Business is booming. Demand for employees is very high. Yet workers for the jobs that need to be filled are in short supply. Workers of all kinds are generally in short supply. 

The supply portion of the equation is the biggest challenge. More Americans than ever are either retired, disabled or disinterested in finding work. So as more job openings are created, there are fewer applicants available to fill each one. This isn’t due to  exceptional savings by Americans, it is primarily due to the extraordinary “safety net” that exists on our soil.

Even though welfare was “reformed” twenty years ago, and there has been a significant decrease in aid to single parent families with dependent children, other factors dictate a reduction is the overall supply of employees. Primarily, these are: a combination of the rapid rise in the share of the population that’s beyond retirement age, significant increases in disability recipients, and people who have chosen self-employment over traditional forms of work. In combination, these groups are far larger than the number of people who need to find jobs today. 

In America, we tend to have a positive view of retirement and self-employment. But if you’re going to enjoy your retirement, you need people who will perform the services that make your retirement pleasant. Similarly, when you learn the pathway to success in your own small business, you eventually reach the point that you need help in continuing to produce the goods or services that make your business profitable. Perhaps a lot of help.

The Wealth Gap

With a tight labor market comes pressure on wages and benefits. In the last two years, we are seeing the first real dollar increase in wages this century. By itself that’s good news for the middle class. 

But regardless of new wage increases, we’re also seeing an increasing gap between the highest and lowest income quintiles of Americans. We now have more people living just above the stated poverty line than at any time since the data has been reported by the Department of Labor. 

Suddenly, we’ve also become a country of millions more people who live just above or just below the poverty threshold of income and go unreported. Part of the reason for this is immigration that violates US immigration laws, and while that issue generates lots of headlines, there’s a much bigger reason this is happening. 

There are now many, many small business owners who make little enough money to pay no income tax or even to file a return. Granted, many of these business owners simply choose not to file even when their income would demand otherwise, but the reality is, we’re living in the middle of an era where there are tons of entrepreneurs who are struggling just to make their next month’s rent or mortgage payment. 

Truly, these are the people who we should want to help the most. They are productive, self-sufficient and pose little or no burden on the rest of our society. But old school prescriptions for redistribution won’t work to help them. Minimum wage increases don’t help, they don’t earn wages. In fact, increasing the minimum wage will only make it harder for these entrepreneurs, not easier, because it would drive up the cost they incur to hire new employees when they really need to help grow and expand their business. 

Similarly, increasing tax rates on the highest earners has never done anything to help a small business owner. The tax increases are generally readily avoided by the savvy accountants who prepare returns for the highest income earners, and even if there is any new money captured, the last place it goes is to the struggling business owner who is taking care of himself and his own family to begin with. 

Finally, bear in mind that whenever redistribution is forwarded to an individual or family, it is always given at a subsistence level. Whether it’s welfare, disability or other forms of government aid, you don’t see people making $50,000 a year on these programs, much less 75 or 100. People don’t work 50, 60 or 100 hours a week in order to make enough money just to survive. They work to make a better life for themselves and their families.

Artificial Intelligence

So how does artificial intelligence factor into this equation? Discussing the impact of AI is tricky and complicated. Historically, every time we’ve experienced earlier advances in technology at a macroeconomic level, more jobs than ever follow that advance. But AI is introducing the first time in history that we’ve encountered technology designed with the intention of replacing humans with machines. While every major innovation in history has eliminated certain human jobs, they’ve all been designed to improve productivity mechanically or otherwise. AI, however, exists for the purpose of making human labor, in various places and ways, utterly obsolete. 

No one really seems to object to a Roomba vacuuming your floors on the one hand, but when you theoretically don’t need live doctors, teachers, even firemen, perhaps that’s a different story. Those are jobs we encourage, even send our kids away to study for. 

But then it’s fair to ask – will this really happen? I would suggest it’s not, but rather than delve deeper into such a complex issue, at this juncture, I would just invite discussion on the topic and revisit it later.

“We Just Can’t Find People”

Hearkening back to the tight labor market, this common refrain of small business owners seems to fly in the face of the earlier concerns. That is, if robots are replacing people right and left as we speak, shouldn’t there be plenty of bodies out there looking for the type of work profitable business owners need a couple of hands and feet along with a functioning brain in order to fill the orders and get the work they need done? 

Perhaps America, culturally and politically needs to look deep into its own soul and understand what this equation really looks like. We have plenty of ways of either avoiding a serious consideration at the problems of labor shortages, gaps in opportunity and heavy concentrations of wealth, or defaulting to “solutions” to these problems that have been tried and do not work.

But we’re facing an extraordinary problem. Men like Zuckerberg, Bezos and Larry Page behave as if they have exist above and outside the constraints of governmental authority, at least in the ways that most of us do. True, even where we’re not ruled by the government per se, 

When many Americans stare into the abyss, this is the future they foresee – a very privileged, very few, will own absolutely everything – and maybe there’s nothing we can do about it. Or can we? And can we do it in ways that are actually healthy and bode well for our future? Not with the inherent curses of socialism, but with the inherent promise of a people governed of the people, by the people and for the people?

Maybe we just need to think a little deeper. Maybe at this point, your mind can begin to wander in a direction of hope – not dependency based notions of false hope, but real hope for real goodness. What if what the future really holds didn’t have to be a world where the very wealthy dominate everything from the food supply to housing and medicine, the fantasy world of the men I mentioned above, but rather, the future holds something very different and much more positive for all of us. 

Imagine an economy where business, profitability and the capacity to manage the factors of production all became much more readily accessible to everyone, i.e. where everyone really does have a chance to become wealthy, and if you stay in the game long enough, you almost certainly will. It’s not so different from times past in America in many ways, except that in the past, opportunity has been limited by access to capital. 

Sometimes those limitations were imposed racially, other times geographically, and other times even more arbitrarily. The bottom line has been that few people had access and many did not. But what if we had an economy where the one certain thing you could count on, was the ability to get access to the capital you need to pursue your most serious dreams?

What would this look like? How would it come about? Think about it and engage the discussion. What would be your solution(s)? 

Meanwhile, at JFE we’ll use this maiden editorial as a springboard to discussing  the many parts of a solution as we see it. Hope you’ll stay tuned…

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