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Friday, September 09, 2011

Kerrigan Responds to President's Jobs Plan and Speech

SBE Council President & CEO Karen Kerrigan issued the following statement on President Obama's speech and the "American Jobs Act" that he outlined before a joint session of Congress last evening:

"We are pleased small business was featured prominently in the President's speech, and we look forward to reviewing the details of the American Jobs Act. Specifically, as it relates to the payroll tax cut for employers and various hiring credits aimed to boost hiring, we hope these provisions are not unduly complex or have conditions attached that may prevent small firms from fully utilizing these incentives.

"The extension of 100 percent business expensing through 2012 is a welcome move, however the short-term nature of this provision does not align with the longer-term approach that entrepreneurs take toward business planning. Short term extensions and incentives in general, especially during challenging economic periods, are less effective at stimulating investment.

"How these provisions and the other elements of the plan are paid for will also determine the proposal's overall impact on job creation and economic growth. If the plan is offset by tax increases on entrepreneurs, businesses or investors this will diminish the effectiveness of the President's plan. Sucking private capital out of a gasping, fragile economy is not a sound strategy for growth.

"Entrepreneurs we work with are happy to see the President supporting a proposal that SBE Council has been helping to advance through regulatory and legislative channels. The Administration has indicated it supports a 'crowdfunding' exemption from SEC registration requirements for firms raising less than $1 million. President Obama has also expressed interest in exploring Sarbanes-Oxley barriers that are preventing small firms from accessing the public markets, as well as raising the cap on mini-offerings from $5 million to $50 million. Entrepreneurs need access to growth capital, and modernizing SEC laws and regulations is imperative to helping small firms identify new sources of capital. (For more information about the crowdfunding exemption, you can review a recent media release on the issue by visiting: (http://www.sbecouncil.org/news/display.cfm?ID=4357)

"Unfortunately, the President did not broach the subject of fixing his health care law. The burdens and higher costs associated with ObamaCare are keeping small firms from hiring. The new law is driving health coverage costs higher for small businesses, and the unknowns relative to various provisions currently in the rulemaking or implementation stage continue to drive uncertainty. In addition, the President did not directly address the issue of new regulations in the pipeline and whether his Administration will take a more thoughtful approach to a system that is currently out of control. In fact, he seemed to defend the existing approach, which is a source of anxiety and concern for small business owners.

"I hope the President is open to ideas that will add value to his proposal. He needs to embrace a more collaborative approach with Congress - Republicans and Democrats alike - and consider their ideas to improve his plan. The President may get the 'jolt' desired if he includes legislative ideas that stem the tide of regulation, make permanent key tax provisions and fix the parts of the health care law that impose higher costs, taxes and new burdens on small businesses. Entrepreneurs and millions of Americans are hurting right now. This is a time for leadership, and we hope President Obama steps up to the challenge."

SBE Council Staff Post

Thursday, September 08, 2011

Reactions to DoJ Attack on AT&T-T-Mobile Merger

The Obama Department of Justice has generated a great deal of controversy by challenging the proposed merger between AT&T and T-Mobile.

Deputy Attorney General James M. Cole declared that this merger would mean "higher prices, fewer choices and lower quality products for mobile wireless services." But does this have any basis in reality?

We at the Small Business & Entrepreneurship Council (SBE Council) responded with appropriate outrage fit for when political appointees decide they know better than the marketplace, in particular, better than consumers.

SBE Council President & CEO Karen Kerrigan said, "It is unfathomable that the government has decided to block a merger that would bring high speed wireless access to many areas of the country that need such a tool to compete and survive in the challenging economy. It's hard to believe that DOJ decision-makers, as well as leaders at the Federal Communications Commission, still cling to an outdated view of competition when all the evidence demonstrates that innovation, lower prices, and vast choices are flourishing. This backward thinking by DOJ, and the other private-sector micromanagers in this Administration, is killing investment, jobs and opportunities for entrepreneurs."

Others weighing in are worth highlighting.

George L. Priest, who teaches economics and law at the Yale Law School, writing in the September 6 Wall Street Journal, made two fundamental and important points:

"First, there's lots of competition in the wireless market. Prices have been declining progressively over time. There are many local market competitors with discount and pre-paid plans. There is clearly an economic reason that T-Mobile's parent, Deutsche Telekom, has no further interest in the American wireless market. If there were great profits to be made because of lack of competition, Deutsche Telekom wouldn't be selling T-Mobile. Second, the best evidence of the prospective effect of a proposed acquisition is the response of competitors that will face the combined firms. The chief competitor, Sprint, the third largest wireless company, has been lobbying to stop the merger from its first announcement. If the acquisition would lead to increased prices and lower quality products as the Justice Department has claimed, Sprint would be better off after the acquisition. Sprint would be able to add subscribers, not lose them, because of AT&T's higher prices and lower quality."


Hmmm. Interesting and hard to argue with, especially that second point.

On September 1, the editorial page at the Journal laid out some basics quite nicely on this dynamic market:

"An AT&T and T-Mobile tie-up would create the country's largest wireless company but that wouldn't happen in a vacuum. The bigger AT&T (130 million subscribers) would have to compete with Sprint (52 million) and Verizon (106 million), as well as cable and satellite companies itching to get into the game. Digital satellite TV company Dish Network filed a waiver with the FCC last week to build a wireless 4G network with its radio spectrum. Smaller players like MetroPCS Communications, Leap Wireless International and others are mounting challenges in concentrated urban and regional markets and growing quickly... A July paper by economists Gerald Faulhaber, Robert Hahn and Hal Singer analyzed U.S. wireless markets and found them to be highly competitive. Unlike Justice, however, the authors distinguished between market-share analysis that infers future anticompetitive behavior and modern techniques of looking at direct evidence of price movements and consumer options."


There was reaction on the presidential campaign trail as well. On September 1, for example, TheHill.com reported:

"Republican Rick Perry's presidential campaign reiterated the Texas governor's support for AT&T's acquisition of T-Mobile on Thursday, one day after the Justice Department sued to block the deal. ‘AT&T is a highly-regarded Texas-based company, creating thousands of good American jobs and providing critical communications services worldwide,' Mark Miner, a spokesman for Perry, said in an email. ‘Governor Perry believes the combination of the two telecom companies will be good for consumers, good for technology innovation and good for America job creation.'"


In a letter about merger to the FCC in May, Perry wrote: "The future rests in wireless broadband, and the federal government's swift approval of the merger between AT&T and T-Mobile would send a strong signal to employers, consumers and states that our federal government is serious about meeting the communication and technology needs of Texans and all Americans."

While the ultimate success of a merger between AT&T and T-Mobile would be decided in the market by consumers, real potential exists to expect that the resulting combined entity will be better able to achieve economies of scale, to invest and innovate in broadband wireless, and to enhance quality and lower costs for consumers in this very competitive and dynamic marketplace.

From a small business perspective, entrepreneurs and their workers obviously would benefit from enhanced quality and lower prices as consumers of wireless services. But benefits also would come from working in and serving other businesses and workers in the telecommunications industry, as broadband investment expands.

It takes antiquated and misguided thinking to believe that a merger between AT&T and T-Mobile would truly result in reduced service, less innovation and higher prices. Unfortunately, government antitrust regulators specialize in such archaic views.

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Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council.

Pipeline Project: Good for Energy Production, Economy and Small Business

The U.S. State Department recently took a step forward in the approval process for the extension and expansion of TransCanada Corp.’s Keystone XL pipeline.

The 1,300-mile Keystone pipeline transports Canadian sands crude oil from Alberta to Cushing, Oklahoma. TransCanada wants to expand the pipeline’s capacity, and extend it to Gulf Coast.

This project has been under review since 2008. The State Department issued its environment impact statement on August 26, which found that the pipeline would have no significant impact on the environment.

A number of news reports have labeled this project as “controversial.” But in reality, there’s nothing controversial about it. In fact, it’s only a small group of vocal hard-core environmentalists who have ginned up controversy. But these are the groups that oppose any efforts to expand the development and use of fossil fuels.

The State Department still has additional reviews regarding the project’s potential impact on the economy, energy security and foreign policy. A final decision is expected by year end. But with the environmental aspect of the review done, it’s hard to see how the State Department could view this project negatively according to the remaining criteria.

After all, from a foreign policy standpoint, we hardly have a better friend on the world stage than Canada. Indeed, our neighbor to the north is our biggest trading partner.

In addition, in terms of where we import oil from, Canada ranks number one. If we want to boost our energy security, increased imports from Canada can only be a plus.

Finally, the analyses done in terms of this project’s impact on our economy have all been positive. It was pointed out in an API statement, “By 2035, Canada's oil sands alone could generate close to $775 billion in GDP for the U.S. and support 600,000 American jobs, according to the latest report from the Canadian Energy Research Institute.”

API Refining Manager Cindy Schild added, “The nation’s quintessential shovel-ready project is a step closer to reality. That's good news for tens of thousands of Americans who stand to find new jobs when this pipeline project is finally approved. If the State Department gives the final okay, hiring could begin immediately in hundreds of American companies in the Midwest and across the country.”

And this means increased opportunities for small businesses. Consider, for example, that according to the latest Census Bureau data (2008), 98.6% of firms involved in supporting oil and gas operations have fewer than 500 workers, and 83.1% have less than 20 employees.

As for firms in the oil and gas pipeline construction industry, 94.7% have less than 500 employees, and 60.3% have fewer than 20 workers.

In the end, the Keystone XL pipeline project would be a big plus for energy security, the economy, jobs and small business. The State Department should move ahead with its final approval, as this project has been delayed for far too long.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Wednesday, September 07, 2011

Kerrigan Talks Small Business and Job Creation on CSPAN

SBE Council President & CEO Karen Kerrigan talked about jobs, the economy, President Obama's upcoming jobs speech, and Republican presidential candidate Mitt Romney's jobs plan on CSPAN's Washington Journal, September 7. She responded to telephone calls and electronic communications from viewers.



SBE Council will analyze President Obama's plan for job creation and getting the economy growing again. Keep checking back on the BusinessTrends blog, or visit our website at www.sbecouncil.org.

SBE Council staff post.

Tuesday, September 06, 2011

Trend in Proprietors’ Income

Personal income data for July was released on August 29. When looking at the bottom line, that is, seasonally adjusted, real changes, personal income was flat in July versus June, and disposable income actually declined by 0.1 percent.

That’s troublesome.

In assessing the longer-term trend in personal income, though, it’s also worth taking note of what’s occurred with proprietors’ income. Keep in mind that when assessing how businesses are performing, it’s not just about corporate profits, but very much about proprietors’ income as well.

When annual proprietors’ income and corporate profits peaked in 2006, nonfarm proprietors’ income stood $1,103.6 billion and corporate profits at $1,784.7 billion.

After big drops in 2007 and 2008, corporate profits subsequently grew in 2009 and 2010. At $1780.4, corporate profits in 2010 were almost back to their 2006 level.

Meanwhile, proprietors’ income declined dramatically in 2007, 2008 and 2009, with some growth finally in 2010. However, at $984.2 billion in 2010, annual proprietors’ income remained well below the 2006 high.

Throughout 2011, on a seasonally adjusted basis, proprietors’ income has grown in each month.

Proprietors’ income matters a great deal to the economy. It is the annual return on most business ventures, and is a key source of investment in new and expanding businesses, and in job creation.

There’s no doubt that the 18 percent decline in nonfarm proprietors’ income from 2006 to 2009 played a major role in the recession and huge job losses.

A return to growth in 2010 and 2011 is most welcome. It shows the tremendous resilience of U.S. entrepreneurs and businesses, and provides a bit of hope for the future during this time of economic gloom.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.