My August newsletter interview with Dr. Jeff Cornwall, the Jack C. Massey Chair in Entrepreneurship and Director of the Center for Entrepreneurship at Belmont University. He is also the author of the popular business blog, The Entrepreneurial Mind.
1. In your opinion, what (if anything) is different about this economic cycle and its long-term impact on small business?
DJC: We are in uncharted territory right now. This is not a typical cycle due in large part to policy decisions that have not recognized the importance of small business in our economy and the critical role they play in almost every recovery. With higher taxes, more mandates, increased regulation, and weakening property rights, entrepreneurs are hesitant to take risk. Because of this, I believe that the best case scenario is a long period of time with economic stagnation that could last for several years. If the economy actually begins to heat up, we will likely enter a period of high inflation due to the current policies of the Fed and due to our sky rocketing deficits. We could see inflation that has not been experienced in this country for generations. Another possible outcome is one that would be caused by another shock, such as the one we experienced on 9/11. Our economy is too fragile to absorb the impact of such a shock and the outcome will be another steep economic decline.
The good news for small business is that there are still opportunities out there. But, it is essential to minimize risk – keep overhead low, pay down debt, and build up cash. Prudent and calculated risk will be rewarded, as we are entering a period of entrepreneurial Darwinism. Only the strong and well-managed businesses will survive any of the three scenarios I outlined above.
2. In your opinion, what has Texas done well to build/maintain its standing as a leading business destination? What has it done poorly?
DJC: Keeping taxes low and protecting property rights have been key to the success of states like Texas. The fact that Texas is standing up to the federal move toward socialism has enhanced its business-friendly reputation.
3. If cap and trade legislation passes the Senate as it was in the House, what impact will it have on entrepreneurship and small business?
DJC: The impact would be devastating. It would lead to a drastic increase in taxes and regulation. With much higher tax rates the rate of entrepreneurial activity will plummet. We have already seen this happen in other countries that have tried to implement Cap and Trade.
4. What impact would the proposed healthcare legislation have on entrepreneurship and small business?
DJC: It would also devastate small business. We have been presented with a false choice in this debate. It is not a choice between capitalistic healthcare versus socialized healthcare. The level of governmental intervention in healthcare and health insurance is what has caused the current “crisis”. We need to deregulate healthcare payment, not hand over lock, stock and barrel to the same government that has created the mess we are in now. The higher marginal income tax rates needed to pay for this will punish small business owners for any success they may achieve along the way.
5. In your opinion, is small business positioned to “lead the way” in an economic recovery or will the recovery come from someplace else over time?
DJC: Entrepreneurs in America are always ready to lead the way in our economy. My fear is that the roadblocks being put in our way may inhibit our ability to build the new economy. What should be of concern for everyone in this country is that if entrepreneurs are not allowed to help rebuild our economy, no one will.