Trade equilibrium to revive small business in America
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According to the SBA, a small business is an independent business having fewer than 500 employees. It plays a very important role in America by making significant contributions in the areas of production, services, and employment.

However, its role in the American economy is declining. It is evident from its population’s declining share in the total population (a very critical factor): from 57.44% in 1995, to 55.69% in 2005, and to 53.42% in 2015. Conversely, share of large businesses for these time periods has increased from 42.51% in 1995, to 44.29% in 2005, and to 46.54% in 2015. (U.S. Census.) 

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Reasons for Small Business Decline

Several reasons are responsible for small business decline. These include difficulties in raising finances; higher interest rates; expensive healthcare; and complex laws and regulations. There are two other important reasons. One, both large and small businesses continue to offshore their manufacturing and service jobs overseas to save costs. Consequently, small businesses and people who are dependent on them lose their business and jobs. This deprives America of innovation and entrepreneurship in terms of products, processes, and technology.

Two, large businesses, under the H-1B program, import foreign workers to do the jobs originally done by the Americans. It often happens in the IT area. Sadly, often the outgoing Americans have to first train the incoming foreigners how to do their jobs. Americans’ extensive job experience and advanced education cannot help them save their jobs.

Often these employees, out of work, have no other reasonable jobs available. Some of them start their own business. They follow what James Adams described as the American dream in his 1931 book, “Epic of America.” (Google). Fortunately, a very small number of them do make their life better and richer through hard work. Sadly, many of them soon realize that the American dream is like a rainbow: beautiful and beyond their reach. Painfully, they accept a low paying job or stop looking for one altogether.

TRADE EQUILIBRIUM: THE SOLUTION

Is there a realistic solution to stop the further decline of, and revitalize, small business? Yes! I call it “trade equilibrium” which I define as, a situation when trading among different countries is such that the trading partners remain generally deficit-free from one another over a cycle of every 2-3 years. This theory has two major goals: (a) to stop exporting of additional American jobs, and (b) to regain the American jobs already exported, by legally requiring the dollar/trade surplus countries to eliminate their surplus over a ten-year period by buying American products (goods and services). (Bhandari, JIBR 2014).

The absence of new trade deficit would save three American jobs per $1 million of such absence. And, the emergence of new trade surplus would create three American jobs per $1 million of such surplus (Bhandari, The Hill, Aug. 21, 2016). America currently has a trade deficit of about $5 trillion. With $500mm coming back home annually would create 1.5mm jobs a year for ten years. (Note: The EB-5 program promotes new foreign investment in America assuming that $1mm can create 10 new jobs.).

The foreigners can spend their dollars buying American equipment or visiting Disney Land. Both our small and large businesses would grow.

With more jobs and higher incomes, Americans would spend more on American and foreign products. Foreigners in turn would use their dollars to buy more American products. The resultant geometric multiplication of free and fair trade between countries will give birth to the next economic revolution—effects of which would be larger than that of the industrial and the Internet revolutions.

Trade Equilibrium vs EB-5 Program

Under EB-5 program, foreigners (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence). To qualify, they must invest $1mm (or at least $500,000 in a high unemployment or rural area), creating or preserving at least 10 jobs for U.S. workers, excluding the investors and their immediate family.

In 1990 when the U.S. developed EB-5 program to create small business jobs in U.S., the country had a trade deficit of $81 billion. If the trade equilibrium model were in place then, the foreigners would have to use their surplus dollars to buy goods and services from America; which in turn would create 243,000 jobs—helping our small and large businesses to expand and grow. Additionally, America would not have to invite thousands of foreigners to create jobs.

The argument that Americans don’t have the needed expertise to create new jobs, and, therefore, it needs foreigners to do it for us, is unfounded and absurd! It is the new investment that creates new jobs, which in turn encourages people to get higher education. Trade equilibrium model would necessitate new investments, as dollars keep coming back home. 

CLOSING THOUGHTS

My theory of trade equilibrium is not against hiring foreigners if it reduces cost of production or increases innovation. However, any trade deficit so created should be corrected by the export surplus countries by importing American products.

Congress should take a close look at this model. Nothing else has helped to keep and create American jobs. Remember, if TE were in place, there won’t be any need for EB-5 to create small business jobs.

Narendra C. Bhandari, Ph. D., is Professor of Management at Pace University’s Lubin School of Business in New York.


The views expressed by authors are their own and not the views of The Hill.