Small government contractors can lead job creation

Small firms can do it if not taxed or federalized into stagnation

The discussion of how to create jobs now that the recession is waning appears to be missing the obvious. Although unemployment numbers are a lagging indicator of a recession and therefore poor numbers should be expected even as the economy recovers, government pundits fail to realize that creating incentives for small businesses to hire workers is the fastest way to encourage new growth and jobs.

In the latest move, the Obama administration is looking to provide loans and tax breaks to small businesses, nonsensically on the heels of initiating policies that will dramatically increase taxes on those same small businesses.

Routinely the media and politicians vilify financial institutions for ripping off the public, insurance companies for making excessive profits on health care, and multi-national corporations for dodging U.S. taxes. This demonization serves as a basis for increasing taxes on the wealthy and changing some government contract workers into federal government employees.

Small business owners are then expected to fund stimulus packages, bailouts of incompetent auto companies, health care reform or whatever else the government can justify in the name of “recovery.”

Let’s keep it simple. Small businesses – including the majority of defense contractors – are capable and willing to lead the charge of job creation and economic recovery. We just need support, not accusations and more barriers. The economy makes reducing unemployment tough enough. An unfriendly political environment for business keeps us from doing what we would otherwise be busy doing, creating jobs.

Don’t let the facts escape the debate

All the talk about the power of big companies and big government being the keys to growth fails to grasp reality. Consider these facts as posted by the National Federation of Independent Business:

  • Small business produce roughly half the private Gross Domestic Product and creates on average about two-thirds of net new jobs annually.
  • Small businesses are the greatest source of new employment in inner cities, comprising more than 99 percent of establishments and 80 percent of total employment.
  • American small business is the world’s second largest economy, trailing only that of the United States as a whole.
  • Small businesses employ more than half of all private sector employees.
  • Small businesses represent 99.7 percent of all employers.
  • Women-owned businesses have grown at about twice the rate of all firms; and minority-owned firms have grown at about four times the rate of all firms.

Small businesses are the answer

The fact is small businesses consistently drive more growth, more jobs and more new ideas. And most of that is not paid for by large government or financial institutions but by the company founders or private equity financing.

This growth provides far greater career opportunity for younger employees without the seniority and time-in-service requirements of government workers or large company bureaucracies.

Small businesses often find innovative ways to create value in a static market, opening job opportunities that did not previously exist. Moreover, these organizations often are the first to hire in a growing economy, eager to expand to a new customer base and unrestricted by multi-year strategic hiring plans that bind large companies.

Many small business owners I know that have downsized are holding off on expanding not because they fear a deepening recession, but because they expect increased taxes and costs.

The "surcharge on the wealthy" in the health care reform bill as passed by the House, in addition to allowing previous tax cuts to expire, will raise the top tax rate in some states to over 60 percent. And, yes, to preempt the obvious jejune argument, money spent by a business for growth doesn’t get taxed, but the company first must accumulate the cash before spending it (unless it simply lives hand to mouth).

Nevertheless, all business profits are taxed, regardless of whether they are intended for growth or not.

The current trend in government to in-source previously contracted positions is also a step in the wrong direction if job creation is the goal.

Successful companies that employ good people can stand as a virtuous cycle in the creation of new opportunities, the development of innovative intellectual property, and the generation of jobs.

But the same workers in a government position always will be paid for by the taxpayer, in a culture where spending every dime of an annual budget is the key to success rather than developing ways to achieve the same goal using less capital.

As an example, look at the desire to take the so-called saved money from the unspent TARP funds and spend it on other programs rather than paying down the deficit or reducing the proposed tax increases.

The bottom line is small businesses as a whole are in a critical position to lead or lag the nation in creating job opportunities.

So while political pundits and media talking heads argue incessantly over the “solution,” those of us who have started companies through hard work and personal risk will press on, knowing that the fate of the current economy will be decided by individual actions more than by large government bureaucracies. Such has always been the American way.

So don’t mind us while we get ourselves and others to work. Just don’t keep us from doing what we do best by taxing or federalizing us into stagnation.

About the Author

Eric Basu is a former Navy SEAL, and founder and president of Sentek Consulting, a 50-person defense contractor in San Diego. He can be reached at

Reader Comments

Thu, Jan 7, 2010 soamie

Often we forget the little guy, the SMB, in our discussions of the comings and goings of the Internet marketing industry. Sure there are times like this when a report surfaces talking about their issues and concerns but, for the most part, we like to talk about big brands and how they do the Internet marketing thing well or not so well.

Mon, Dec 14, 2009

I started a small service disabled veteran owned business in late 2007 and now employ 16 full time and an average of 30 temp employees. I anticipate doubling revenue this year and adding another 15 or 20 full time emplyees. I worked for one of our nations largest companies and assure you they will not double in size nor achieve the growth rate of my or most other successful small companies. Small companies are certainly the backbone of the USA and will be the source of recovery if government regulations do not sink us.

Thu, Dec 10, 2009

Hear Hear!

Thu, Dec 10, 2009 Jim

You know it and I know, but unfortunately the Obama Administration does not know it. Small Businesses will be the ones to turn things around and they need tools to succeed. Funny, because this notion of small federal contractors leading the fight is something that the American Small Business League ( has been advocating for for years...perhaps Obama should have a chat with them.

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