As President Obama wraps up his final year in office, entrepreneurs are taking a step back to consider his business legacy. Business owners, perhaps more than any other group, have felt the impact of his economic policies.
And that legacy is particularly important to consider during National Small Business Week, the annual event that kicked off yesterday in Washington, D.C. and runs through Saturday. It's all about celebrating small businesses, who are frequently described as engines of the economy and the nation's biggest job creators, employing roughly half of all workers in the U.S.
Generally speaking, the president gets good marks for preventing the economy from derailing entirely in 2008. That was mostly due to bailouts, a large economic stimulus, and the Federal Reserve's monetary stimulus, which has kept interest rates low. More controversially, Obama expanded the health care safety net through the Affordable Care Act. But economists, policy experts, and small business owners suggest there's much more to be done.
And while the president's approval rating is at a three-year high, recent news suggests that revised economic growth for the first quarter of 2016 was a sluggish 0.5 percent.
Over the past few years, businesses have added 14 million jobs as regional economies have rebounded; their workers have gained access to health insurance, and a new flock of startups has brought economy-altering innovations, some of which have changed the nature of work itself.
But it's hardly great news, experts say. Economic growth is stuck nearly in neutral with the gross domestic product growing at just shy of 2 percent for the last 15 years. Wage growth has been scarcely better, particularly as more workers become contractors in the so-called gig economy, which offers little by way of job security, benefits, and pay.
"Historians will look at the president's handling of the financial crisis, and he will get stellar marks," says Jim Kessler, senior vice president for policy and co-founder of Third Way, a think tank. On the other hand, for a huge swath of the population, there has been a downward recalibration of expectations, which makes them wonder if there is a place for them in the new economy, Kessler says.
Business owners, particularly those who got their start during the recession, could have a big part to play in rebuilding those expectations, Kessler and other experts say. Many learned to weather the worst of the economic storm, and have built strong businesses that they believe can succeed in the the new economy.
What owners say
When Obama took office, the economy was in a free fall, shedding 8 million jobs between 2007 and 2009, as well as trillions of dollars of stock market wealth. Numerous cornerstone business sectors, such as housing and the automotive industry, were dealt near-death blows. Just as critically, banks were on the verge of collapse, and were bailed out with billions of dollars in taxpayer money.
Perhaps more than any other single policy of the last seven years, it was the nearly $1 trillion from the two American Reinvestment and Recovery Acts that played a major role in assisting those industries, and bolstering the economic health of small business owners.
"The stimulus act was huge, and it had a really strong benefit," says Lance Loken, the chief executive officer and founder of residential real estate company Loken Group, based in Houston, Texas. Loken is an Inc. 5000 company.
Loken says he is no Obama supporter politically, but the stimulus added a critical prop to Houston's housing market, which experienced double-digit decreases in home values and a spike in foreclosures following the crisis. Specifically, Loken says the tax credits of up to $8,000 for new home purchases helped keep the Houston market afloat, and that let him successfully launch his business in 2011.
Over the past five years, Loken has experienced a surge in growth. In 2011, his company notched $8 million in sales, and by 2015 his revenue had leapt to $218 million. This year, he says he's on track to do $350 million. Just as critically, he's added more than 30 employees since founding, and expects to add 20 more workers before the end of 2016.
Loken adds that starting out when the economy was still on unstable ground prepared him for just about anything, including another downturn.
"We started out with so many foreclosures and short sales that entire first year," Loken says. "Now we are prepared for any shift in the economy that might occur."
Similarly, Greg Fisher, the founder of online vacation booking website TripShock, also an Inc. 5000 company, started his business during the depths of the recession in 2009. Not only were consumers ditching their vacation plans as they lost jobs or faced uncertain employment, but the BP oil spill wrought additional havoc on the Gulf States, where his trips focus.
That forced him to get creative, and he figured out how to advertise cheaply and effectively by going to Godaddy and purchasing low-cost domains he could turn into vacation websites. He also bought competing sites in fire sales as they went out of business.
"I had to think outside the box for additional ways to bring people to our site," Fisher says. "That saved us from dissolving what we had just started."
Just as important, the stimulus, with its first-time homeowner tax credit, allowed him to purchase a house, which in turn let him secure business financing. Since 2012, business has been roaring as consumers flock to the coast for the vacations Fisher sells. His company had nearly $3 million in sales for 2015, and he has increased his fulltime staff to 10, from just two workers at founding.
"Our local economy has been very, very good and our 2014 and 2015 have been so strong," Fisher says.
But looking ahead...
Success stories aside, there is much to be done. On the one hand, economists like Robert Shapiro, a senior fellow at Georgetown University's McDonough School of Business, says there have been recent signs of wage growth gathering momentum. That's thanks in large part to the low cost of oil and a compression of health care premium costs, potentially related to the ACA. Yet there are persistent structural issues that continue to haunt entrepreneurs, such as the marked drop-off in bank lending to small businesses.
Between 1995 and 2007, bank lending to companies with less than $10 million in annual revenue averaged about 37 percent of total bank commercial loan portfolios, according to Shapiro's research. Since 2012, that number has shrunk to 26 percent. There are many reasons for the decline, but a prime factor is an aversion to risk when it comes to funding startups, Shapiro says.
"It's good for the economy to have strong business formation, and strong growth in younger businesses," Shapiro says. "The absence of [traditional bank] capital is the largest reason for new business failures."
Others, like Kessler, say the economy could grow beyond its recent sluggish pace if domestic policies encouraged investment in large infrastructure projects, such as upgrading aging transportation and power networks, which in turn would put more businesses to work. Encouraging small businesses to become exporters could also drastically increase GDP growth, he says, as much of future consumer demand is likely to come from overseas.
Absent these bigger-picture policy changes for now, however, business owners like Fisher of TripShock expect the economy to motor on, at least in the short term. A recent informal poll he conducted of his 150 tour-operator partners indicated that 80 percent will expand in the next year, he says. That bodes well for TripShock, and perhaps the economy.
"I have a lot of confidence in the next few years," Fisher says.