On February 22, 2017

Vermont has what businesses really need

By Jon Margolis, VTDigger

“It is almost impossible to start a small business now,” said the president of the United States the other day, and he knew why. It was, he said, “because of regulation.”
As has been noted elsewhere, Donald Trump and fact do not always inhabit the same realm. Depending on how “small business” is defined, almost 700,000 of them were started in the year ending in March 2015, according to the most recent computation of the Bureau of Labor Statistics.
That included many and probably most of the 10,523 “business formations” last year in Vermont, as reported by the Division of Corporations and Business Services in the secretary of state’s office. That number includes nonprofits and other firms not generally thought of as small businesses. But it also includes 4,464 new limited liability companies (not corporations) and 4,280 new “trade names” (small businesses and sole proprietors).
As is true nationwide, the number of business startups in Vermont has steadily risen over the years (not including the years of the Great Recession) regardless of what was done with regulations.
At least every day, it seems, somebody starts a small business in Vermont. Some of them fail, but small businesses fail everywhere, and here’s a statistic that might seem surprising: startup small businesses have a better chance of surviving and prospering in Vermont than in most other states.
The reason that might be surprising is that for years Vermont businesspeople and their advocates have issued what might be described as Trumpian assessments of the obstacles they face in the state.
Last year, arguing against a provision of the mandatory paid leave bill in the state Senate, Kris Jolin of the National Federation of Independent Business said “the small business community has been suffering at the hands of shortsighted policies for years” and that this measure “will lead to further damaging our employment market, which is anemic at best.”
Jolin’s assessment of the mandatory leave bill (which went into effect last month) is arguable. Actual data do not support the assertion that Vermont’s small business community has been suffering, or that its employment market is anemic.
Vermont is rated second highest of the 25 smaller states in the Main Street Entrepreneurship Index of the Ewing Marion Kauffman Foundation. Only four of the other states had a higher “survival rate” of small businesses (the percentage of firms that stayed in business five years after starting up). Only two had a higher “rate of business owners,” defined as the percentage of the adult population that “owns a business as their main job.”
On both those measurements, Vermont’s score was higher than the national average of all 50 states.
The mission of the Kauffman Foundation, created by the late philanthropist and owner of the Kansas City Royals, is “to foster a society of economically independent individuals who are engaged citizens in their communities.” Unlike many supporters of small business, the foundation appears to have no political agenda.
The Kauffman ratings hardly paint Vermont as a small business paradise. The state ranks 14th of the 25 smaller states in Kauffman’s “index of startup activity,” down from 10th in 2015.
This finding is consistent with data from the Small Business Administration indicating that Vermonters are somewhat less likely than residents of other states to start a small business. That’s probably because Vermonters are more likely than other Americans to be in their 60s and 70s and less likely to be in their 30s and 40s. And, on average, it’s younger folks who start businesses.
Kauffman is not the only observer of the small business scene to give Vermont a passing grade as a place to start a business. Business News Daily, an online publication for “small business solutions and inspiration,” found that Vermont entrepreneurs “have access to strong, entrepreneurial communities and operate within a stable economy.”
Business News Daily, a division of a company called Purch (a “digital content and services company,” whatever that means), pointed out the problems small businesses face in the state. Finding enough skilled workers can be a challenge, and taxes are higher than in many other states. Still, it concluded that “small business owners in Vermont are generally content with the direction in which the state’s economy is heading.”
Neither the relatively bright outlook for small businesses in Vermont nor the small business community’s insistence that the outlook is bleak should come as a surprise. Businesses prefer lower taxes and weaker regulation. What they really need in order to succeed, though, is paying customers, or lots of what the economists call “aggregate demand.”
Vermont has a higher median household income than most states. That means it has more folks with money to spend: potential paying customers. That’s good for business.
As to the complaints of small business advocates and lobbyists, well, that’s what advocates and lobbyists do—businesspeople, union leaders, environmentalists, supporters of the poor, the ill or the arts. Their constant theme is that conditions are getting worse for them and theirs, especially here (wherever here may be).
It’s an effective direct mail fundraising tactic.

Jon Margolis is a political columnist for VTDigger.

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