Monday, October 10, 2011

Are Small Business Owners Getting Thrown Under the Bus by Both Parties? Part 2

To pick up where I left off last week, I'm asserting that the biggest moneyed interests have a greater natural tendency to cooperate with social reforms than do most small businessmen.  The next thing I'll take up is bargaining.  It's not essential that you agree with me on the last piece for this piece to work, bargaining dynamics are sufficient on their own to explain why compromises on policies like health care, taxation, and other taxing and spending matters will result in compromises between large, wealthy  corporations and social reformers instead of between small businesses and social reformers, despite the pro-small business rhetoric of both parties.

As a starting assumption I'll assume that social reformers will always be with us, no social and economic system is perfect and there is simply no way to grow our way out of economic and social insecurity.  Laissez-faire is never and has never been a realistic option for eliminating social concerns, we can ignore the voices of the weak (until they take up arms) but their grievances will never just go away.  Since insecurity tends to be highly politically salient except in periods of truly spectacular change and growth we can assume that there will always be a powerful, if inchoate, group in favor of some form of economic intervention to provide social and economic security.

Given that this social pressure will always exist, the question becomes how will it interact with other powerful interests in society.  We can set the broad middle aside here, while it is meaningful to write about the broad middle setting the agenda in a general sense I have the more specific policy compromises at the next stage of bargaining in mind here.  Starting positions for both parties tend to be very favorable to small businesses, however, by the time a bill is passed the systemically important issues for small businesses have almost always been eliminated.  What is retained is small business friendly policies that could fit on a bumper sticker, like tiny loan subsidies or low marginal tax rates on lower business incomes.  What is lost is systemic factors that would aid them, such as a truly universal health care system or alternately, a health care system that would be purely individual rather than mediated by corporations (health care is a big issue where small businesses have been having the worst possible policies, because of low marginal rates they don't get as much of a tax advantage relative to larger businesses, their group rate is higher because of insufficient pooling, and the penalty for not providing care is more damaging to them than it is for larger businesses).

Aside from any natural tendency towards compromise with social reformers, why is it that both parties essentially see fit to throw them under the bus whenever it comes to actually hammering out a compromise?  We know the median voter is very pro-small business, why aren't politicians responding?

I see a few reasons.  First of all, big business is less costly to compromise with.  While people favor social programs they want to keep the costs low.  If compromise involves giving handouts, as the new health care law did, the giveaways that will satisfy big pharma and big insurance are just less costly than what would have to be given to the National Small Business Association or the Chamber of Commerce to get its members on board (not necessarily more efficient but people get worked up over headline cost of government more than they do the relative efficiency of its interventions).  It's just cheaper to get big money on board than it is small business.

The second problem is coordination.  Big business trade associations tend to move a bit quicker than larger membership organizations.  It is just easier to negotiate with an association representing a few dozen firms than it is organizations with hundreds or thousands of members.  It is easier for big business to realize that a new policy is happening and to coordinate a response among its members than it is for small business.  Big business will always have a first mover advantage in realizing that a policy has become inevitable and negotiating a carve out to protect its interests.

The third problem is ideology.  Big business can generally afford to be non-ideological, while individual businessmen may be heavily invested in their political views, the businesses themselves have shareholder accountability and will be more apt towards satisficing behavior.  They'll take a deal if they can get it.  The members of small business associations are less likely to have specialists prepared to argue the business advantages of making a compromise that goes against their ideological beliefs, lacking the time to become well informed of an issue their members are more likely to see compromise as betrayal.  Big business groups will be held together by self-interest, small business associations will more often have their perceived self-interest defined by ideology since the individual businesses can't afford analysts to give them industry specific political advice.  This will cause them to miss self-interested compromises because they lack information relative to big industry.

There are also likely some individual level characteristics, while within group variation is always larger than between group variation, entrepreneurs are likely to have some particular character traits, such as self-reliance, that will give them predispositions to political issues that big businesses will lack.  I'm going to try to wrap this up in one more post that will address some smaller issues, such as individual level differences, as well as what I see as the only way out, which is ideological change.  Since our system has so many veto points the bargaining problem means that as things stand small businesses will always be betrayed by the political system (which further radicalizes them causing a self-reinforcing spiral).  This is because the pressures for social reform are fairly constant (and growing as long as alternative systems that lack our problems exist) meaning that whoever finds a way to compromise with them most effectively will be favored (this doesn't mean that social reforms really get what they want, they'd almost always be better off if a compromise with small business could be reached, I'll try to address this briefly in the next post).  Since small business finds this compromise more difficult to make, they lose the game every time since big business has every reason to defect, every time.

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