The Need for an Entrepreneurial Revolution

Good afternoon. I am Tom Sullivan, Vice President of Small Business Policy at the U.S. Chamber of Commerce. It is an honor to present the U.S. Chamber of Commerce’s views on small business and entrepreneurship before the International Council for Small Business World Congress. 

It is good to be in the company of others, again, who carry on ICSB’s tradition of recognizing, celebrating, studying, and evangelizing the benefits of entrepreneurship globally. I have devoted my career to supporting small businesses and small business policy, including at the National Federation of Independent Business and the Bipartisan Policy Center and as a part of the U.S. Small Business Administration.  I continue to be humbled by advocating for small businesses here in Washington. 

The U.S. Chamber of Commerce is the world’s largest business federation. We represent 3 million businesses of every size and in every sector of the U.S. economy. Roughly 96% of our member businesses have fewer than 100 employees, and 75% have fewer than ten employees. Those numbers include membership from our partnership with over 1,600 local, state, and regional chambers of commerce. This year, we are celebrating 110 years since thousands of those local chambers of commerce banded together and created the U.S. Chamber of Commerce to have a voice for business in our nation’s capital. 

My view on the need for an entrepreneurial revolution is primarily based on how entrepreneurship in the United States is synonymous with freedom. For that reason, I hesitate to emphasize a newness to the insistence for an entrepreneurial revolution. Instead, I believe that free enterprise has been and always will be interconnected with the importance of freedom. The emphasis on “freedom” in the term “free enterprise” pre-dates the U.S. Chamber of Commerce’s 110-year history but certainly was a key ingredient in my institution’s creation as it continues to be today.   

While the need for an entrepreneurial revolution may not be “new,” there are times in history when such a revolution is more important, and now is one of those times. My observation is based on the tension between government control and entrepreneurial activity (for purposes of discussion, I am referencing legal business activity, and an understanding of recent small business growth. 

I observe this every day. And, what a perfect place to discuss the tension between government and private enterprise –the Ways and Means Committee -whose power is felt by every business, large and small, because of its authority over international trade and taxes.   

No elected Member of Congress who sits on the Ways and Means Committee would say that small businesses don’t contribute substantially to our economy and are the epitome of the “American Dream.” Every one of these Committee Members, Democrat and Republican, voted for federal financial relief to aid small businesses after the forced business shutdowns in reaction to COVID-19 two years ago. In fact, Congress came together and rightfully passed an impressive seven laws in 12 months to aid small business. Within each of those bipartisan measures, however, there was tension between government control and private enterprise’s decision-making freedom. For instance, there were tight parameters surrounding the spending of federal grants, such as Paycheck Protection Program loans, to small businesses. Investigations and allegations of fraud continue to make headlines about those COVID relief programs. 

In this committee hearing room, Ways and Means Committee Members debate the incentives within the U.S. tax code that balance control versus freedom. The Committee debates whether there should be advantages for an individual to structure their business as a C-corporation or as a sole proprietor (in the United States, an individual can file taxes and add a schedule C (Form 1040) to account for business income). And, over the decades, those choices embedded in the tax code have various strings attached that afford benefits and cause challenges for businesses large and small. 

The tension between government control and entrepreneurial freedom particularly important now because, after the initial shock of COVID-19 forced shutdowns, applications for new businesses have skyrocketed. The potential sustained growth of entrepreneurship is upon us and balancing control and freedom when it comes to small businesses will have an impact on that growth and whether individuals and communities in the United States can realize the benefits of a growing small business sector. 

Likely New Startups and the Need to Nurture Small Business Growth

John C. Haltiwanger, Ph.D., is an economist who has published work on the small business growth phenomenon. Using Census Bureau data, Professor Haltiwanger found there were 53% more applications to start companies in 2021 compared to pre-pandemic 2019.1  Daniel Newman at the Economic Innovation Group used Census Bureau data to narrow in on “likely employer” startup growth, a subsection of high propensity business applications, which were 41% higher in the summer of 2021 compared to the summer of 2019.2 

Analysis by these scholars and others attribute likely business growth to a number of factors, including the amount of federal stimulus dollars that made startup capital readily available for some. I believe that a significant factor in new business growth stems from the basic concept of small business and entrepreneurship – that businesses are created to solve problems. There certainly were a lot of challenges immediately after forced business closures in the Spring of 2020 that turned life as we know it upside down. When huge swaths of the American business sector began working from home, entrepreneurs rushed to fill the gaps in transportation and product delivery, from order-to-go food to office-at-home furniture. Web-based sales quickly moved from a luxury for some sellers to a necessity for every purveyor of consumer goods. The term “omnichannel” that references purchases made through a blend of online and in-person experiences expanded from retail-only to the universal purchasing of goods and services as a consumer and into the business-to-business environment. Entrepreneurs who plunged into the market to solve logistics challenges in the summer of 2020 morphed into technology-based service companies to handle the rapid uptick of omnichannel purchasing.   

Despite the positive news of small business growth and decreasing COVID infections, the headwinds encountered by small businesses did not necessarily abate. Instead, fears of shutdown were replaced by supply chain challenges, price hikes, and continued workforce shortages. Concerns about inflation now top the list of small business owners’ challenges, and policymakers in Washington cannot ignore the need for relief.3 

Here now, immediately before us, there are two divergent approaches to answering small businesses’ plea for help. The U.S. Chamber of Commerce believes government is ill-advised to try and micro-manage small businesses past an inflation-caused crisis. Instead, we advocate for a hands-off partnership between government and private enterprise. 

Examples of Government Interference Damaging to Startup Growth 

Efforts by the U.S. Department of Treasury to stop state governments from using federal relief funds for small business tax cuts may be well intentioned, but government interference with states’ decisions to free up small business’s own capital can do more harm than good. One lesson learned from the Tax Cuts and Jobs Act of 2017 was that small businesses by in large re-invested savings gained from favorable tax treatment. 4  Reinvestment can take many forms, from buying new equipment to expanding a facility, to adding benefits for employees, and more. One example is Mike Zaffaroni, owner of Liberty Landscape Supply in Jacksonville, Florida, who used the savings from tax cuts in 2018 to purchase a new $80,000 truck and forklift.5 

There are also efforts underway by government to ignore the benefits of non-employer firms and, instead, treat sole proprietors as employees of clients. This policy concept is premised by a desire to prevent large corporate interests from denying benefits to employees by falsely re-defining those employees as independent contractors. Unfortunately, the attempted micro-management of defining sole proprietors as employees ignores the tremendous economic power of the 81 percent of America’s 32.5 million small businesses that are nonemployer firms.6  Ronnie Sloan, a business consultant in New Orleans, Louisiana uses independent contractors to meet an ever-changing mix of clients and scopes of work. Lack of clarity in state and federal law on what constitutes an employee versus what constitutes an independent contractor hurts his business. 

Whether it is government trying to designate the allocation of capital or narrowing the ability of entrepreneurs to start non-employer firms, the net effect is to make business formation more costly, and those costs add up quickly. Of note are new proposals for construction permitting and for carbon footprint reporting by small supply chain companies. 7,8 

The U.S. Chamber of Commerce is pushing back against these proposals largely because raising the costs of entry for new founders and raising the costs for ongoing small businesses will stifle the time-tested value of entrepreneurship. Data show that small businesses drive innovation more than fifteen times the rate of larger research and development companies. Plus, small employers historically are responsible for two-thirds of net new jobs totaling just under half the private sector employment in the United States.9  This becomes even more important now with a growing concern by small businesses that the U.S. economy will enter a recession in the coming year.10 

Appropriate Balance of Freedom

The policy committee at the U.S. Chamber of Commerce on small business issues is the Small Business Council. When asked about the appropriate balance between government involvement and business owner freedoms, the Small Business Council developed a Small Business Bill of Rights intended to capture the principles desired by small business owners for the guidance of elected leaders in Washington, DC.11 

The statement by our Small Business Council is that: 

Our elected leaders must ensure that founders, entrepreneurs, and small business owners operate in an environment where they can: 

• Hire and manage employees 

The government should not unduly burden a small business’s ability to establish their own employment policies nor interfere with their ability to fairly compete for talent, including independent contractors and part-time workers. 

• Establish the terms on which they do business 

Small business owners should be free to manage the daily operations of their business, including establishing terms of service and entering into contracts without unnecessary government intervention. 

• Be protected against frivolous lawsuits 

A small business has the right to operate without fear of profit-based litigation that uses the threat of lawsuits to extort payments. 

• Benefit from their business and direct its future 

Small business owners should enjoy the return on the businesses they build and be free to determine the future of their business, including the ability to sell the business or leave it as an inheritance. 

• Be free of onerous regulations 

Small business owners have the right to be heard in the development of rules and regulations that affect their livelihoods, their employees, and their communities and for government to take into consideration, the disproportionate impact regulations can have on small businesses. 

We are working with Congress to explain these principles and one of the first reactions by Democratic Representative Dean Phillips of Minnesota, an owner of Penny’s Café and Coffee Shop, was that “… government should be a wheelbarrow and not a wall,” emphasizing small businesses’ desire for government partners to nurture growth and not inhibit it.12 

How to Advance Entrepreneurship 

America rallied around small businesses in March 2020, when people were confronted with the possibility that small firms that make up the fabric of many communities may cease to exist. The outpouring of support, not only by elected leaders at a local, state, regional, and national level, but by neighbors, friends, patrons, and peers, bolstered the ability of entrepreneurs to survive and thrive. 

There continues to be an opportunity to demonstrate the positive impact caused by business founders solving problems. Every entrepreneur I have met can explain the good intentions of their idea or their solution. For example, Flags of Valor in Winchester Virginia was created by veterans who knew there would be a demand for American-sourced flags.  Co-founders Brian Steorts and Joe Shamess also knew that their business could provide an employment path for combat injured veterans who hand craft the company’s patriotic works of art.  Small businesses solve societal challenges too.  Last year’s Dream Big Small Business of the Year, Urban Grape, created a program designed to bring students of color into the wine industry.  TJ and Hadley Douglas, the owners of the Boston-based wine shop, created the Urban Grape Wine Studies Award for Students of Color to increase access to the wine industry where people of color remain underrepresented.   

Making the explicit connection between entrepreneurship and solving problems involves putting human faces on the research and scholarship underway by many of you at ICSB.  It is through your efforts and through the efforts of other entrepreneurship experts that we can advance the entrepreneurial revolution.