By Karen Mills
Feb. 28, 2014
This week I had the pleasure of participating in Harvard Business School’s “America on the Move Summit” alongside business leaders like Jeff Immelt from GE and Mary Barra from GM. Our event came right on the heels of the President’s announcement that he will push for a “grand bargain on jobs” to pair $302 billion of investment in our transportation infrastructure with corporate tax reform. And, I spoke about why investing in America’s infrastructure is important to small businesses.
It’s no secret that America’s 28 million small businesses were hit hard during the financial crisis with a perfect storm of declining sales and frozen credit markets. Since then, we’ve turned a corner. Small businesses have created jobs in every quarter since 2010. But, are we doing everything that we can to put the wind at the backs of our small business owners?
I think that we can do more, and making critical investments in our infrastructure is a good start.
When we think about infrastructure spending, we think about its immediate effect on aggregate demand. If you repair a bridge you’re employing people right away, and they’re immediately earning income and spending that income throughout the economy. That creates demand across the small business economy, and nowhere is that more evident than in construction.
About 80 percent of jobs in construction are at small businesses. That’s the largest small business concentration of any industry. There’s no doubt that investment in infrastructure would be an immediate stimulus to small construction companies — and at a time when they desperately need it. The President’s Council of Economic Advisers has shown that 61 percent of the jobs directly created by investing in infrastructure would be in the construction sector. That’s important because small construction companies lost 2 million jobs during the recession. And, while we’ve made some progress, the sector has not fully recovered, with an unemployment rate that’s over 12 percent. In fact, Goldman Sachs has estimated that all of America’s missing small business jobs are because of weakness in construction.
So, that’s the short-term effect, and it’s pretty powerful.
But, there’s also a longer-term effect. Small suppliers and exporters are key end-users of our infrastructure, so when we invest in our infrastructure, we’re investing in them too. To be sure, without modern infrastructure, products can’t move quickly. Supply chains become more vulnerable. And businesses are more reluctant to invest.
Broadband is a key example of the potential opportunities in our reach if we invest in our infrastructure. We’ve made major strides in improving broadband and wireless access in America. In 2000, just 4 percent of American households had a home connection to broadband — now it’s 70 percent. Average speeds have doubled in the past five years. These investments in our broadband infrastructure have created jobs across our economy, and perhaps the greatest example of that is the burgeoning app economy, which has created almost 800,000 jobs in the last five years. Many of these app entrepreneurs are even transforming how we use our infrastructure. For example, apps like Uber are changing how we use taxis.
But, gaps remain. When I started working with the Maine boatbuilders in 2005, one of their big issues was the lack of broadband access in the rural coastline because they needed to transmit large blueprint files back to the navy or private owners. So, we need to do more to broaden access to affordable, reliable and faster Internet connections across the country.
Investing in our infrastructure isn’t something that small businesses can do on their own. So, who’s going to do it?
Well-executed public investment has got to be part of the solution here. But, the taxpayers shouldn’t have to shoulder this burden alone. That’s why we’ve got to add public-private partnerships to mix.
I know from my experience as SBA Administrator that public-private partnerships can be pretty powerful.
At SBA, we operated a public-private partnership with 5,000 lenders across the U.S., guaranteeing their small business loans and taking some of their risk off the table. We were able to deploy a record $30 billion in capital a year for less than a billion dollars. And all this money helped small business that the market wasn’t reaching access the capital they needed to grow.
A second model is the Small Business Investment Company (SBIC) partnerships. We used this to get equity capital into small businesses that venture capital was not reaching, and it may be a useful model for infrastructure investments that have some cash flow. In this structure private investors make the decisions on which projects or companies will get the investments, which helps ensure that the projects have a good economic rational. The SBIC model last year deployed over three billion dollars to America’s most promising entrepreneurs, at zero cost to taxpayers.
There’s an important lesson here: a little government money can go a long way by incentivizing private capital where risk may otherwise be too great to justify the return.
Over the past few years, Washington has been consumed by a rancorous debate about the deficit and the proper size of the federal government. It’s an important debate. But, we can’t just cut our way to growth. We’ve got to make game-changing investments in our future. I think it starts with infrastructure, and now is the time to act.