George W Bush was supposed to have said: “The problem with the French is they don’t have a word for entrepreneur.” Unfortunately he never said it (though he really should have). Today’s Washington is also ambivalent about the French word. In a bitterly gridlocked town, every politician still pays lip service to small businesses. Yet by turning a blind eye to the needs of struggling entrepreneurs, the town is conniving in their declining fortunes. President Barack Obama would help his embattled presidency and the US economy if he embraced the cause of America’s entrepreneurs.
The rate of small business creation in the US is in long-term decline. Last year just 513,000 businesses were created, down from 543,000 in 2011. Overall, businesses under five years old account for just 8 per cent of US businesses, against 13 per cent in the 1980s, according to the Kauffman Foundation. Would-be entrepreneurs are hampered by a litany of problems. The US tax system gets ever more complex, which favours large companies that can afford to hire lawyers to navigate their way through it. The same applies to federal regulations, whose growing complexity benefits large corporations. Most large pieces of US legislation should be subtitled: The Full Employment for Accountants and Lawyers Act.
Access to credit is even more skewed. In spite of the length of the US recovery, the volume of lending to US small businesses keeps falling. According to the Small Business Administration, last year lending fell by $19bn to $587bn – a fifth below pre-recession levels. Washington’s regulatory grip on those banks that still lend to small businesses – America’s community banks – keeps getting tighter. According to Tom Hoenig, vice-chairman of the Federal Deposit Insurance Corporation, the effective equity cushion at the largest US banks is between 4 and 6 per cent of their balance sheet. For the small Main Street banks that still make “character loans” – lending money to customers they know – that cushion is 9 per cent. In other words, US regulators are twice as strict with those banks that are least likely to pose a risk to the system.