‘Policy Uncertainty’ and Small Business Governance

One of the most persistent problems business leaders face is the sheer unpredictability of the government. In other words, how can you really know what kinds of new regulations, taxes, and general policies will become law in a few months? You can’t — and that complicates your strategy making.

This factor, called “policy uncertainty”, is thought to be worse than ever given how contentious lawmakers have become. While both sides of the aisle argue that they’re all for small business, they can’t seem to agree on exactly what policies would be best for small businesses.

Republicans claim that “policy uncertainty is keeping small businesses from expanding, dampening job creation and weakening growth in gross domestic product because small companies account for half of private sector economic activity,” writes Scott Shane at Businessweek.

“Democrats counter that there’s no evidence policy uncertainty is responsible for the currently tepid small business sector,” Shane adds.

So, who’s right? And why does it matter? Is business productivity really suffering because of “policy uncertainty”?

It’s tough to measure this sort of statistic, but Shane gives it a go — and finds that, as of July 2011, “the net percentage of small business owners who were planning to hire — those hiring minus those laying people off — would have been 6 percentage points higher had there been no policy uncertainty.”

What’s the solution, then? Isn’t policy uncertainty — the lack of agreement between the two major political parties — always going to be a problem for business owners?

“While both parties need to work together to reduce policy uncertainty, the first step is for the Democrats to accept that policy uncertainty is real and is holding small businesses back,” Shane concludes.

He goes on to outline three ways lawmakers can reduce policy uncertainty:

  • Clearer. No more “temporary legislation,” which make it tough for small business owners “to forecast future costs and revenues to make decisions.”
  • Faster. Avoid passing laws that need “months or even years of bureaucratic interpretation before small business owners can figure out what the provisions mean.”
  • Simpler. Avoid legislation that’s overly complicated and difficult to understand.

Originally published: Nov 30, 2011

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