No one can deny that small business plays a key role in America’s economy. But for many businesses in the small and medium sector, survival has become paramount, given the current economic downturn. As well, questions remain as to how the downturn will affect the way they do business in the long term.
For some perspective on the changing profile of America’s small and medium business sector, Monster spoke with Dr. Martin Regalia, Vice President for Economic and Tax Policy and chief economist at the United States Chamber of Commerce. Dr. Regalia was recently named one of the top 10 economists in the nation by USA Today.
The following excerpts are taken from a conversation recorded on March 17th, 2009.
Monster: How do you see small businesses responding to the current economic fallout?
Marty Regalia: They're husbanding their resources and reevaluating risks. They're rethinking their expansion plans. They're into much more of a survival mode than a growth mode. If we're going to get the economy moving forward, we’ve got to change that dynamic and get everybody back into a growth mode where people will assess and take reasonable risks.
Monster: Will the current downturn impact America’s small businesses in the long term?
Marty Regalia: I think that small business will be less likely to have to adjust than some of the bigger businesses and certainly less than some Wall Street businesses. Wall Street’s method of operation will change -- their major regulatory structures, limits on activities and tax rates will all change.
Small businesses are going to have to go back to the same economy and the same community that they're used to. What will be different are the things that devolve down from the changes I just mentioned -- in other words, the availability of credit.
In the old days, the bank’s function was to take local deposits and redistribute them to the local area. In many cases, that left the local area short of investable funds. One of the things that the secondary markets did is allowed for pockets of credit around the world to be gathered, comingled, sliced, diced, reconstituted and funneled down into the system in ways that made more credit available to small businesses at somewhat lower interest rates. This process benefited smaller businesses. In some cases, smaller businesses didn’t even realize this, because they generally still dealt with their local commercial bank or local thrift institution or whatever.
Going forward, small businesses will likely see some differences in terms of availability of credit. Also, in the future, banks will be somewhat more suspect and careful in their evaluations of risk, which means that it may be that the prices for some of these loans are going to be a little bit different.
In general though, I think small businesses will go back to their communities once we get past the current crisis in the same communities they had before. That means that they’ll struggle with the same issues -- how do they find workers, how do they compensate their workers, how do they handle additional healthcare costs, how do they handle higher energy costs?
Monster: It sounds like small businesses face an unlimited number of challenges.
Marty Regalia: You're absolutely right. There is no end to those challenges. But the thing that's interesting about small businesses is that they've always had those challenges. My dad had a small business. He had a one or two-pharmacist drugstore. My mom did the books and I grew up delivering prescriptions, cleaning the windows and stocking the shelves on Saturdays.
Are the challenges any less daunting or more daunting today? No. They're still the same old challenges that business -- small businesses especially – have. Their strong point is that they've continually met those challenges. They're going to have to meet them again.
Monster: Will the challenges that small business owners face ease up?
Marty Regalia: We're never going to be in a situation where small businesses don't have to deal with the everyday business problems that small businesses have dealt with for hundreds of years.
What we’re going to try and make sure is that this administration doesn't compound those problems with bad public policies that, on the surface, may look good, but when they devolve down to the community level and the small business level, they really are counterproductive and not conducive to helping small business.
I think the best thing that you can do in Washington for small businesses is get out of their way. I mean small business owners are pretty innovative. They're pretty imaginative. They're pretty facile. They move into markets and out of markets very quickly because they are small. It's one of their great attributes. What you want to do is facilitate an economy that allows them to do their thing, instead of an economy that continually puts road blocks up.
Monster: You’ve pointed out what Washington needs to do. What do small business owners need to do to survive this downturn?
Marty Regalia: When the economy gets a little bit better, they can focus a little bit farther down the road and say, "Okay, what do I have to do to grow, or what do I have to do to attack a new market, to penetrate a new market, to make money in a different way?" But right now, it's basic survival.
If I was running a small business, I would continually be talking to my bank. I would continually be in talking to the people that have provided me credit -- that's important. I would also be talking to my employees, because you want to retain the good employees in this type of environment. They're going to be a little bit concerned about their future and wonder if they’ll have their job tomorrow.
I would be talking to employees to communicate to them what challenges the business is facing, but also, how it's dealing with them and how they expect to continue to deal with them so that they're going to be around. The third thing is talking to your customers and the challenges they're facing, because they're also not getting the credit that they normally had. In many cases, that credit was what allowed them to purchase your products and services.
So I think that if you focus on your credit, your bankers, your employees and your customers -- and not necessarily in that order -- that's what small businesses have to do to survive. And it's what they can do that I think sometimes big businesses can't. Big businesses are fine talking to their bankers but they're not so good sometimes talking to their employees or to their customers.
Monster: Do you have any words of encouragement for small business owners?
Marty Regalia: Yes -- we're going to get through this. It's worse than anything else we've had to face since the Great Depression. It's not as bad as the Great Depression. We're doing things to make sure that it doesn't go from where we are to the Great Depression and we're going to get through it. So focus on survival in the near term so that your business is around to help rebuild on the outside. The economy and the country are going to need you to do that.
Dr. Martin A. Regalia is vice president for economic and tax policy and chief economist at the United States Chamber of Commerce.
Prior to coming to the Chamber in April 1993, Regalia served as the director of research for the Savings and Community Bankers of America (SCBA). Regalia also served as a principal analyst in the Fiscal Analysis Division at the Congressional Budget Office, as an economist for the board of governors of the Federal Reserve System in both the Banking and Capital Markets Sections, and as a financial economist for the Federal Deposit Insurance Corporation.
In addition, he served as a consultant to the Thrift Institutions Advisory Council to the board of governors of the Federal Reserve System and was a visiting instructor at The George Washington University School of Government and Business.