Welfare for business may not bring jobs

Economists and politicians have long argued about the appropriateness and effectiveness of economic stimulus programs to try to jumpstart sluggish economies and the practice of giving tax breaks, grants and low-interest loans to attract corporate job creators (i.e. corporate welfare).

Now Connecticut is trying yet another approach. Call it economic stimulus through small business welfare.

The $100 million Small Business Express Program, approved with near unanimous support by the legislature as part of the Jobs Bill in October, is handing out $100 million in low-interest loans and grants to the little guys, companies with fewer than 50 employees at the time of application.

Seems like the fair thing to do. Since states appear committed to providing incentives to lure the big guys, it appears equitable to send some help to the little guys. And aren't politicians always telling us small businesses are the big job creators?

Unfortunately, the facts appear to say something different. While it might seem fair to help small businesses with loans and handouts, the truth is that most of these small businesses, unlike the big corporations states compete for, are not moving. They will either make it or not right where they are.

Also, most small businesses eliminate more jobs than they create in a given year, either through layoffs, closings or bankruptcy. And most don't pay very high wages. That was the determination of a recent study, "What do Small Businesses Do?" by University of Chicago economists Erik Hurst and Benjamin Wild Pugsley. They found that most small business owners just want to be their own boss and never expect to hire more than a few employees.

The small businesses that do really drive job growth, the study's authors found, are those run by innovators and entrepreneurs, companies with genuine growth potential. As an Associated Press story about the small business study aptly put it: Think Bill Gates and Paul Allen huddled together late nights developing Microsoft, not the guy at the corner liquor store.

Yet, by all appearances, the state Department of Economic and Community Development (DECD) is not being terribly selective in parceling out the Small Business Express Program funds. The Star Hardware Corp. Hartford got a $100,000 grant to redesign its showroom; the Dog Lane Café in Storrs a $100,000 grant for startup operations; Fields of Fire in Mystic a $100,000 grant to get its paintball competition operation off the ground.

So far the state has handed out $6.08 million in loans and $4.8 million in grants to about 70 small businesses. With $100 million to work with, there will be many more. But if there is a strategy to this, outside of giving out a lot of money to generate a few jobs at many different places, it is difficult to discern.

I asked David Treadwell, a spokesman for the DECD, how the state is going about choosing which small businesses to invest taxpayer money in.

"The business approaches us and we evaluate what they do, how they are doing it, are they in a growth industry, an industry important to the state, and how healthy are they? We do our due diligence and make a calculation; are they going to be able to pay us back?" he said, adding after a pause, "Sometimes it is just a gut feeling."

The growth industry part sounds good, not so much the gut feeling. Yet it is hard to envision Raceway Golf Club & Restaurant in Thompson, which received an $88,525 grant to update its fleet of golf carts, as a pioneering growth business.

"If you want jobs, you have to focus on the innovative firms trying to provide something new and different," economist Charles Kenny of the New America Foundation, a nonpartisan business research group, told the AP.

That would seem the better approach for the state's Small Business Express Program. But that would require greater discernment and almost certainly fewer press releases. Right now the state is announcing at a rapid pace the small businesses winning grants and loans, usually with a quote from a local legislator up for re-election. Call that vote stimulation.

Paul Choiniere is the editorial page editor.