Friday, August 3, 2007

Attention to small business needs will pay huge dividends in region

AS I SEE IT
By Stephen J. Adams

Last year, Central Massachusetts newspapers trumpeted the decision by Bristol Myers-Squibb to build a $1.1 billion facility at Devens in the communities of Ayer, Harvard and Shirley. The pharmaceutical giant pledges to bring 350 high-quality jobs to the region in about four years’ time, with the promise of a total of 550 to 900 jobs in the future.

It is clearly an important win for the region and the state, but it is also important to recognize the role of small business in the state’s economy.

Between 2003 and 2005, according to U.S. Census data, Central Massachusetts lost more than 200 small businesses — businesses with fewer than 100 employees. Among these were more than 30 businesses with 20 to 99 jobs. If this pace continues, the region could say goodbye to another 366 small firms and 1,700 to 2,200 jobs by the time Bristol Myers-Squibb opens its doors in 2011.

It is clear from these numbers that small businesses have a large impact on employment in Central Massachusetts. While it may come as a surprise to Massachusetts policymakers, the ill health of the Worcester region’s small business economy is not going unnoticed by the national business press. American City Journal’s annual ranking of markets for small business growth placed Worcester on its 10 worst markets list, just ahead of Buffalo, Detroit, New Orleans and Springfield.

To be sure, the Worcester region is home to many healthy, innovative small businesses. In fact, two of this year’s Inc. Magazine Inner City 100 firms, Absolute Machinery Corp., with 11 employees, and bulbs.com, with 35, are in downtown Worcester. Like the state economy as a whole, the Worcester regional economy is dominated by small businesses. Fully 97 percent of all Central Massachusetts employer firms have fewer than 100 employees, 86 percent fewer than 20 workers.

Moreover, Central Massachusetts has many of the assets of the nation’s most vital entrepreneurial regions — numerous universities and colleges, world-class cultural institutions, a mix of urban and scenic rural environs and proximity to large metro markets. The trick is to create an environment that encourages more entrepreneurs to start and grow their businesses here.

One key to a vigorous entrepreneurial region is a regulatory environment that is sensitive to the challenges facing small businesses, an element that is sorely missing in Central Massachusetts and in the commonwealth as a whole.

In a local example, when Worcester needed to address serious water pollution issues, it imposed strict new requirements on area restaurants. It was not until after small businesses reacted to the costly new regulations that the city stepped back to consider other equally effective and less costly approaches to addressing the environmental problem. Similarly, the Legislature last year passed a measure aimed at tightening labor laws around contract construction. The bill was developed without getting input from small businesses. As a result, the Legislature has created what is perhaps the nation’s most restrictive independent-contractor law, to the serious detriment of the thousands of sole proprietors operating across the state.

The federal government is not immune from burdening small businesses. In fact, according to a study commissioned by the Office of Advocacy, the nation’s smallest firms — those with fewer than 20 employees — pay $7,647 per employee every year just to comply with federal regulations. This heavy burden is 45 percent more than large companies pay.

So it is important that local government and small businesses in Central Massachusetts take the lead in creating an entrepreneur-friendly environment. On a public policy level, local governments can adopt regulatory flexibility practices. At work on the federal level for years, regulatory flexibility procedures include analyzing the potential impact of proposed regulations on small businesses, aggressively reaching out to small businesses for their advice on new regulations and adopting flexible approaches to regulations that affect small businesses. Regulatory flexibility measures can lead to better regulations that both meet important public policy goals and minimize the burden placed on local small businesses.

The Office of Advocacy has documented billions of dollars of savings at the federal level due to agencies using regulatory flexibility. During the 2006 federal fiscal year alone, attention by federal agencies to small business impact and input saved U.S. small businesses $7.25 billion in one-time regulatory costs and $117 million in annually recurring costs.

It is also important that the Central Massachusetts business community play a more active role in shaping the region’s small business environment. For instance, today there is no effective way for a small business to complain about unfair treatment from state or local regulators without risking recriminations, while infrequent, improper or unfair treatment by a regulator can deal a devastating blow to a small firm. To address this problem, the region’s business associations should team up to create a small business task force to provide a forum where small businesses can bring concerns in confidence and bring them to the attention of senior policymakers.

Special attention by business and civic leaders to the area’s small business environment will pay huge dividends. Given the valuable assets in place in Central Massachusetts, there is no reason why the region cannot be among the nation’s most vibrant for job-creating small businesses.

Stephen J. Adams of Holden is the New England small business advocate for the Office of Advocacy at the U.S. Small Business Administration.