Twenty years ago, at a lightly attended legislative meeting in Olympia, a state senator said, “When the big dog dies, the fleas have to find another place to go.”
The subject was the machinery and equipment sales tax exemption. The senator was responding to another member’s observation that the tax break would primarily accrue to larger businesses. (In fact, a lot of small manufacturers also benefit.) While I might have chosen a metaphor that hinted more at parity than parasites, the impolitic comment hit at a larger truth: There is an inextricable connection between small businesses and large corporations.
Nationally, and prominently in our populist state, big business is often lambasted for political advantage, while small businesses enjoy an iconic, sacrosanct status. Last week, President Obama released his latest recovery “to do” list for Congress. Calling for small business tax credits, Obama said, “Small businesses are the engine of economic growth in this country. We shouldn’t be holding them back — we should be making it easier for them to succeed.”
A recent survey of small business owners also runs with the theme.
“Small businesses have been described as the engine driving America’s economy,” says Thumbtack.com, a young web-based business that links customers with service professionals. The firm notes that small businesses provided 65 percent of net new employment between 1993 and 2009 and about half of all private sector jobs.
Certainly small business development is vital, but these “engines of the economy” comments overlook the interdependent connection between large and small employers. Recent research on two of our state’s dominant industries makes the point.
According to University of Washington economist Theo Eicher, Microsoft has been the “single largest contributor to economic growth in Washington” since 1990, accounting for 32.4 percent of the total gain in employment. He calculates that the firm generated $10 billion in operations and expenditures in Washington in 2009. For every Microsoft job, another 5.1 jobs are created in the local economy, for a total employment impact of 252,863 workers.
In 2009 the Washington Research Council, my employer, asked the question: What if Boeing left Washington? The ensuing analysis found that every Boeing job supports another three jobs in the state. With 72,000 direct jobs at the time, the airplane manufacturer accounted for 285,000 total jobs. (Since that study was completed, Boeing employment has climbed and is expected to reach 83,000 this year.)
Many thriving small businesses in our state owe their success to the presence here of corporate leaders like Microsoft and Boeing anchoring dynamic industrial clusters.
Still, those small entrepreneurs operate in a demanding environment, with some unique business challenges stemming from public policy. It’s instructive to consider what matters to them.
With support from the Kauffman Foundation, Thumbtack recently surveyed small businesses listed on its website, gathering more than 7,000 responses. While not a random sample — small businesses were invited to respond by clicking a link on Thumbtack’s web page — the survey results merit some consideration. Perceptions matter.
Small businesses here gave Washington an overall grade of C-minus on overall small business friendliness, ranking us 32nd of 44. (Six states were excluded because not enough respondents filled out the survey.) Idaho, Texas, Oklahoma, Utah and Louisiana were the top five for overall small business friendliness. Vermont, Hawaii, California, New York and Michigan landed on the bottom.
Washington-based respondents gave Washington below average marks on hiring costs, regulation and taxes. Thumbtack reports that small businesses here were the third least healthy nationwide and fourth slowest growing, based on survey responses.
A similar survey from Chief Executive magazine finds that corporate leaders see us much the same way. In the 2012 Best/Worst States for Business rankings, Washington came in at No. 37. The top five states include Texas, Florida, North Carolina, Tennessee and Indiana; California, New York, Illinois, Massachusetts and Michigan again ranked lowest. Key factors influencing the rankings are workforce quality, taxes and regulation, and quality of life — the same things that matter to small businesses.
Expect candidates to lavish a lot of attention on small businesses this year. That’s politics. But if they really want to help them, they will promote an agenda that works for all business, including the big dogs.
Richard S. Davis is president of the Washington Research Council. His email address is rsdavis@simeonpartners.com.
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