Memo to Small Business: We’re from the government and we’re here to help

Across the state, main streets have gone from being closed to being boarded. For California entrepreneurs, doing business in the state has hit a new low.

It’s too early to get insurance data on what the vandalism, arson, and looting has cost business owners across the state.  Worse, because of the COVID-19 pandemic, many cash-strapped business owners may have let their insurance lapse.  Janet Ruiz, a spokesperson for the Insurance Information Institute, told CalMatters that she and her colleagues had been urging businesses to keep their policies. “You could still have a fire, even if you’re closed and not there,” she said. “And there’s always the possibility of regular vandalism — though we didn’t foresee riots.”

Before the coronavirus pandemic and the riots, California small businesses — suffering from high taxes and red tape — were already on perilous ground. Nevertheless, they are the backbone of the state’s economy. “Despite the immense wealth generated in Silicon Valley and among real estate speculators and the entertainment elite, most of the state’s growth in recent years was in low-end service businesses,” wrote Joel Kotkin in an op-ed for the Los Angeles Times.  He cited the work of Chapman University researcher Marshall Toplahsky, who found that 80 percent of all jobs created in the state over the past decade paid less than the state median income — half of those jobs paid well under $40,000.

Many of those jobs may not come back for a long time. “When you’re driving down the street and all you see is plywood . . . that affects your view of the future,” said Stanford University management professor David Dobson on CNBC.  If that future is uncertain, he explains, “The baker is not going to buy that extra mixer; that baker who thought he could get by with twelve employees, well now maybe he can get by with 10.”

And while government has handed trillions of dollars to prop up the economy during the pandemic, we can’t help but be reminded of what Ronald Reagan said were the most terrifying words of the English language: “I’m from the government and I’m here to help.”  Thankfully, Congress made some important fixes to the PPP loans for small businesses, for example, giving owners more flexibility in spending the money.  One reason only three-quarters of the second round of PPP money was spent, according to Dodson, was that the rules were changing by the week leaving business owners reluctant to spend the money.

Small business owners also have had to compete with government to get their workers back on the job. The extra “help” of $600 a week in unemployment benefits meant that half of those receiving benefits are collecting more money staying home than working according to the Wall Street Journal .  Now it’s been reported that the Treasury Department is considering another payout to get workers back on the job.  In the nanny state, says Dodson, “we’re going to try to manipulate people’s behavior by saying, well, we paid you a bonus to get laid off, now we’re going to pay you a bonus to get back on.”

As for state aid, Gov. Newsom used his emergency powers to provide $50 million to guarantee private loans to small businesses that were unable to access federal relief funds. In Newsom’s revised budget, he proposed another $50 million. With a June 15 deadline to pass a budget, the final amount is still being negotiated.

Business owners, by now weary of government help, have instead turned to technology and their fellow citizens.  The GoFundMe website is full of campaigns by businesses that have been looted or vandalized. In Santa Monica, more than 17 local businesses turned to the crowdfunding site including Sunny Optometry, of which every member of the staff belonged to a minority community and was founded by a first-generation immigrant. GoFundMe alone says that it has raised over $9 billion from more than 120 million donations – just one small demonstration of the collective goodness and generosity of the American people.

Rowena Itchon is senior vice president of the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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