The Small Business Climate in Washington State
2002-04
Washington has one of the most difficult business climates in the nation. Each year 22% of businesses in the state fail. Policymakers realize we have a problem, yet many seem unsure of the specific issues or what to do about them. Business and policy leaders are discussing changes to the tax and regulatory structure in an effort to persuade large businesses, like Boeing, to keep jobs in Washington. One voice, though, has been conspicuously left out of the policy discussion; that of small business.
Small businesses provide the economic backbone of our communities. Their owners are not in far-off cities or exclusive gated enclaves. They live down the street, in our own neighborhoods and towns. The more than 200,000 small firms in Washington make up over 95% of all businesses in the state and provide nearly 60% of the jobs in the private sector. Nationwide, small firms supply three quarters of employment growth and constitute nearly half of all economic activity. Unlike corporate executives, small business owners take substantial personal risks as they work to transform their ideas into successful, job-creating enterprises.
In 2001 Washington Policy Center began working with National Federation of Independent Business (NFIB), Independent Business Association (IBA) and a number of other associations and chambers of commerce across the state to pursue research on the concerns and opinions of small business owners. We conducted a statewide survey of small business owners and held 15 Small Business Roundtables in 14 cities across Washington. Following is a brief overview of our findings.
During difficult economic times, the burden of taxes and regulations is particularly apparent. In a time when every penny saved and every added cost can mean the difference between making payroll and filing for bankruptcy, it is more important than ever that state and local governments honestly assess how their policies may be hindering the success of small businesses.
In our roundtable discussions small business owners agreed that for businesses to succeed in this state it is imperative for government to be fair, accessible and effective. In our research we found three underlying problems about which business owners expressed the most concern.
Regulatory Uncertainty: The state administrative code runs to more than 34,000 pages and comprises a stack of books more than five feet high. A small business owner is required to locate, understand and fully implement every section of those pages that apply to his business. In addition, he is required to understand and strictly follow all local and federal codes and rules. Federal regulations alone add nearly $7,000 per employee per year to the cost of running a small business. Some of that cost is absorbed in the form of lower salaries and reduced benefits, but much of it is passed to consumers in the form of higher prices.
Government Accountability: A government that is accountable provides clear reasons for imposing new rules and regulations on businesses. Roundtable participants expressed doubt that state agencies were faithfully following legislative intent in implementing new laws. They gave the Department of Labor and Industries' new ergonomics regulations, land-use restrictions enforced by Growth Management Hearings Boards and the Sound Transit light rail plan as examples of how they felt government agencies are exceeding their legal authority.
Anti-business Climate: Small business owners identified the anti-business attitude shown by many agency employees and elected policymakers as a significant underlying cause for the state's poor business climate. They said government managers often treat small businesses more like an enemy than of an ally. Most business owners said they honestly want to comply with regulations and laws, but they reported that navigating the sea of official red tape is nearly impossible. When businesses voluntarily request assistance from a public agency, owners have found they risk being exposed to an audit or fine.
After compiling the results of the statewide roundtables and responses to our Small Business Survey, we identified the issues that are of greatest concern to most small businesses in our state. They are:
These findings are presented in detail in the Washington Policy Center policy brief, "The Small Business Climate in Washington State." Our findings help explain the barriers small businesses face on a daily basis. The policy brief also includes a summary of the issues discusses at each of the 15 regional roundtables.
Some general observations arising from our research help form a complete picture of the unique and often challenging world of small business. We found there is a general lack of trust between small businesses and government, built up by years of adversarial interaction. The state-imposed barriers to business success have grown substantially, squeezing many smaller firms, particularly minority businesses, out of the market. We found the high tax and regulatory burden is contributing to an expanding underground economy. On a positive note, we found a broad sense of optimism among small business owners. Despite many confusing and costly government regulations, most entrepreneurs we spoke with still expressed confidence in their ability to succeed.
Small businesses provide jobs, create social and economic bonds within the community and are the driving force behind our state's economic future. State and local elected officials should look to this community as a valuable resource, one that can provide useful insight in shaping public policies in the future.
Washington Policy Center plans to convene a statewide small business conference in late 2002. This conference will bring together business leaders, policymakers and academics to discuss how we can coordinate our efforts to make Washington a better place to do business. We will also identify specific policy changes to improve the business climate by publishing "An Agenda for Reform." By working together we can again make Washington a great place to do business.