Asymmetrical Information - Megan McArdle

10.25.12

Who's the Candidate of Small Business?

No one.

At the Wall Street Journal, Sarah Needleman reports that both Mitt Romney and Barack Obama have missed an opportunity to woo the small business community:  

"Neither candidate has done a convincing job to demonstrate that the small-business owner will be better off under his administration," says Joel Shulman, associate professor of entrepreneurship at Babson College in Wellesley, Mass. "Small-business owners don't have a clear candidate," he adds.  

And it's true: the issues that politicians are talking about--were talking about even before the campaign--are not the issues that small business owners say they care about.  Politicians like to talk taxes and small business loans.  But in the National Federation of Independent Business quarterly survey, these items are well down the list of stuff that businesses name as their "most important problem".

Number one issue: the cost of health insurance.  And while the Obama administration has been touting the theoretical benefits to small business from embracing ObamaCare, the reality is far from clear.    Especially for growing companies--there are big inflection points around the 25 and 50 employee marks that will substantially change the firm's cost function.

The rest of the top 5? Uncertainty over Economic Conditions, Energy Costs, Uncertainty over Government Actions, and Unreasonable Government Regulations.  Federal income taxes are number 6.

It's easy to see why politicians don't talk as much about those things--at least, not convincingly.  The purpose of a campaign, after all, is to bicker about economic conditions and government actions.  They can hardly provide certainty while they're busy explaining how the other guy is going to destroy America.  And while in theory, we'd all like to get rid of unreasonable regulations, the problem is that those unreasonable regulations are, well, there for a reason.  A reason that sounds really good, like "keeping workers safe" or "preventing children from dying in tragic pajama fires".  The regulations may not, in fact, do a very good job of those things.  They may also have unintended side effects; concerned mothers are now complaining about all the leaching chemicals with which furniture and even clothes are impregnated . . . thanks to the fireproofing campaigns of the 1970s.  But those tradeoffs are complicated to discuss, so any attempt to repeal said regulations tend to fail the first time some opponent says "President Obama is trying to repeal fireproofing regulations so that furniture companies can make profits off of unsafe furniture.  Why does President Obama want everyone in America to die a terrible, fiery death?"  

Loans and tax cuts, on the other hand, have handsome constituencies and obvious benefits.  So they tend to get the lion's share of the attention, even though they are not the biggest problem small businesses face.  

In other words, small businesses are right to think that neither candidate is really speaking to them. And the reason they aren't is that they don't have much to say.