It’s been a while since I’ve written about business issues, but now that I have the perspective of a post-recession year behind us, I’m compelled to say a few things about our economy. Horst Engineering is doing fine. We took our lumps in 2010 and 2011, but so did a lot of other companies. We have 85 employees at our plant in East Hartford, Connecticut and 30 at our operation in Guaymas, Sonora, Mexico. So, we aren’t a tiny business, but our annual sales would be a rounding error on many big business’ income statements. We will thrive again, but headwinds remain strong and we are part of a sector known as small business, that isn’t getting much love.
The political outlook is clearer now that the presidential election is in the past, but the ongoing rift at the federal level is not good for the United States’ outlook. It is bad enough that we face fierce domestic and foreign competition, challenging markets, budget cuts, skyrocketing health care costs, and a general economic malaise. But, now, our political leaders don’t even have the foresight to forestall more damage before it is done. Special interests make it almost impossible to strike compromise and build consensus for the greater good. I would just ignore this worrisome pattern of partisan bickering if it didn’t have such a profound affect on small business and the economy. However, it does, so it is worth noting that waste in government is rampant.
In a manufacturing business, we are relentless in our pursuit of continuous improvement. Governmental weakness is even worse at the state and local level. There is even more waste. In Connecticut, we had a commissioner of education charge the state exorbitant travel expenses while pulling a massive salary, and working from home. He doled out massive raises to most of his staff when private sector businesses were hunkering down and delivering bad news to their employees. This episode was a sign that there is even more waste in state subsidized higher education than even anticipated. Example after example of this sort of trouble could be cited.
I’m careful to criticize the behemoths of industry because many of them are our customers, so I’ll be generic. In addition to large private sector companies, we do a lot of work directly and directly for the Department of Defense. Once gain, corporate America has proven how different they are from family businesses and small privately held businesses. The Wall Street Journal even published a story today about how big business has “sold out” small business. Sold out is a strong term, but the reality is that Horst Engineering has little in common with the Fortune 500. In addition to being the customers of small business, most people with a 401(k) plan and mutual fund investments are reliant on the success of large capitalization businesses. They may even be employed by them. It’s messy and hypocrisy abounds if you criticize.
Another story from last week covers the impact of higher taxes on small businesses, particularly those that pay their taxes via the shareholder. We face challenges at the local, state, and federal level. All three are starving for revenue to fund government, programs, and budgets. Every time I read a story about waste in government, it fires me up. Jeffrey Immelt, General Electric’s CEO has taken shots for his leadership of the Obama administration’s business task force. Are these corporate titans in touch with the needs of small business? David Cote, Honeywell’s CEO, is taking flak for his support of higher taxes on higher income earners. This story summarizes his position.
There is a big difference between taxing the income of a big business CEO, rock star, actor, or athlete; and taxing the income of a small business owner who has company profits on paper (not cash) flow through his/her tax return because of an S corporation or partnership. Higher tax rates on small and mid-sized business owners will have a major impact on those businesses ability to reinvest. That means less capital equipment, less expansion, and less hiring.
I could continue to build a case for this war on small business, but in the end, I focus on what I can control and what our family’s business can control. We work with our people, the key to our success, and eliminate our own waste while attempting to build better products and deliver more value to our customers. I won’t hold my breath and hope for a political compromise. Things may not get better for some time. After all, someone has to fund this waste in government. Some small business leaders are far more vocal. They scream about the impact of taxes on their hard-earned profits. I understand why they are so mad.
I remain optimistic that small business will once again lead the way and that are economy will find more stable footing. We need the entire global economy to get to a better place because all countries are linked. I just wish that our society put a less emphasis on the big businesses, struck a balance, and truly respected the virtue of small and mid-sized businesses, and what the stand for.