Another provision of a small business recovery act should cut in half the federal tax on capital gains that result from investment in small businesses. Investors would benefit from this provision only if they had their money at work in the small company for more than three years. A model for this type of legislation is now on the books in California; a parallel federal measure would help small businesses nationwide attract equity capital. Those who consider this kind of measure to be undue favoritism have forgotten the different levels of risk involved in investing in small and large businesses.
Still another way to expand the flow of cash to small companies would be to offer to investors a "participating debenture." As the law stands, a company that borrows money can deduct only the interest it pays on the loan. Now, if it chooses to pay a lender a combination of interest and share of profits, only the interest portion is deductible. Changing the law to allow the borrower to deduct the share of profits as well would help the smallest companies that don't have attractive equity or that simply do not want to give it up.
Whatever specific provisions the bill includes and whatever their precise form, we must not lose sight of the basic reason for making small business an integral part tor any national job-making strategy. In their AICPA paper, Swain and Guttman cite a forthcoming SBA study that points to one solid rationale. The study establishes that "small businesses provide twothirds of all initial work experience and training opportunities. Specifically, 67% of all male workers get their first steady job in firms with fewer than 100 workers." And, from 1979 to 1981, Fortune 500 companies reduced employment by 600,000.
Suppose a measure like SBERTA were accompanied by a strong push toward ending government competition with small business (see INC., July 1982, page 124). That would serve as another green light to that part of the private sector most likely to make jobs quickly. It would say to business that government really means to be the employer of last, not first, resort.
"Well," you say, "a bill like SBERTA might have real value. But why of all things create a National Commission on the Global Economy? Who needs one more dust-catching report?"
We all need a report on worlcl economic conditions -- a report that must be studied and utilized. We have now had a global recession for nearly seven years. I have asked every economist, business leader, and government official I have met during the last year to tell me what precipitated this worldwide slump. Without exception, they shake their heads ruefully. "Productivity went down," says one. "Inflation," says another. "OPEC and oil prices," suggests a third. But they all concede that they are not satisfied with what they have read and heard. I suggest that the world's latest revolutions in technology may be making all our major economic theories obsolete -- none are adequate, not the Marxist, Keynesian, classicist, neoclassicist, or supply-side.
In The New York Times, the morning after the November elections, James Reston put it this way: People are out of work in the Unit ed States, businesses are failing at a record rate, not primarily because Ronald Reagan loves the rich and hates the poor -- though he some times forgets the difference -- but because the world is changing fast er than we can change ourselves or our political institutions.
Few Americans even know that the recession we are experiencing is worldwide. Yet they know in their bones that what Mr. Reston says is true, that the aches and pains of our own economy are tied up with what is happening elsewhere. And they know that rapid change has shaken our most fundamental economic assumptions. What worries them most, perhaps, is the fear that, even if their leaders know more than they, they still don't know enough to cope with the present crisis.
Making decisions without seeing the whole picture means frequent missteps. Sometimes, for instance, the changed global economy means that ostensibly sensible policies have unpredictable, damaging side effects. In 1982, for example, the Federal Reserve Board took a number of steps to strengthen the dollar against other currencies. Doing this however, also made our export goods more costly and less attractive to other countries' consumers and foreign goods more attractive to Americans. As a result, at press time, Treasury Department officials were predicting that 1982 would end with the biggest trade deficit in our nation's history.
A comprehensive study of the world economy could clearly lay out the consequences of different policies. At the very least it would sharpen the focus on what has already occurred and throw light on the policy alternatives we have available.
The impulse to do a thorough study is not a new one. It is just two years, for example, since Richard Bolling, former representative from Missouri, persuaded the Joint Economic Committee to prepare and publish 10 volumes of papers as a "Special Study of Economic Change."
But how many members of the Senate and the House have had a chance to look through these volumes? A high-level national commission could certainly use these collected papers as a starting point, perhaps summarizing them in one volume. However it goes about its study, a commission must find answers about where we have been heading and how we got there. Only then can we begin to know where we must go.
It may make sense for the 98th Congress to spend dollars on public works and other job-creating measures. But the amount of money it allocates or doesn't allocate will not be the best measure of its success. If it tries, however, to go down in history as the "thoughtful Congress" -- one that put in place a viable plan for the present, while prudently planning for the future -- it will be doing what I believe the American people want.
