All things considered, American big business is doing just fine, thank you. Profits, productivity and exports are up. New hires, rehires and wage increases, as I have written, are nowhere to be seen. They're no longer part of the U.S. corporate business plan, in which higher profits are premised on having fewer employees. Sell abroad, cut costs at home -- the global marketplace that American business has created is paying off big-time.
Not so for American small business, which inhabits those less rarefied realms of the economy in which depressed domestic demand and bottled-up credit remain a mortal threat. The great private-sector trickle-down machine has largely stopped working for small businesses. A May report from the Congressional Oversight Panel on the TARP (chaired by consumer advocate Elizabeth Warren) found that bank lending to small businesses has plummeted, particularly among the big banks that taxpayers helped bail out. The Wall Street banks' lending portfolio declined 4 percent between 2008 and 2009, the report concludes, but their lending to small business declined 9 percent. Smaller banks -- "strained by their exposure to commercial real estate and other liabilities" -- have similarly reduced their lending.
As the corporate sector hums along without hiring, hope for a recovery increasingly depends on boosting consumer demand through public investment and jump-starting small-business expansion through tax credits and a reopened lending window. For the past half-year, the administration and congressional Democrats have been unable to overcome Republican senators' resistance to increasing public investment. Senate Republicans have also blocked their efforts to cut taxes and increase loans to small business -- even though such policies have long been GOP priorities and small business has long been considered a key Republican constituency.
Late last week, the Senate's 41 Republicans united to block a bill that would have temporarily eliminated the capital gains tax on small businesses that issue stock, increased the tax deduction for start-ups, increased their depreciation allowance, and established a $30 billion fund, offset by budget cuts elsewhere, dedicated to small-business lending by small banks. The bill was backed by generally pro-Republican business lobbies; to add a further note of absurdity to the GOP opposition, some of the bill was written by Republican senators. The Republicans' ostensible reason for opposing these motherhood-and-apple-pie provisions was that Democrats were limiting the number of amendments they could bring up. Their actual reason was to deny Democrats a legislative victory on the kind of stimulus package that still commands substantial public support and, just possibly, to forestall any economic uptick before November.
Republicans are certainly right that Democrats, for political and economic reasons, are focusing more on helping small business recover. A June survey from the firm of Democratic pollster Stan Greenberg argued that "Democrats can win the economic debate by making small business the center of their agenda."
But there's another way Democrats can assist small business besides continuing to press for their small-business stimulus. The president can choose a champion of small business to direct the newly created Consumer Financial Protection Agency. He can nominate Elizabeth Warren.
To date, we have heard chiefly that the big banks look askance, and then some, at the prospect of Warren heading the agency. She is among the nation's leading critics of the credit card rip-offs that big banks have long inflicted on cardholders as a matter of policy. Precisely for this reason, she stands out as a small-business hero, because in the absence of bank lending, small businesses increasingly are turning to credit cards as a source of funding or operating revenue. Fully 83 percent of small businesses, the Federal Reserve reported in May, use credit cards. Three-quarters of small businesses that apply for business credit cards secure them, according to a 2010 survey from the National Federation of Independent Business, while just 39 percent of bank-loan applicants obtain loans. A 2009 study from the National Small Business Association concluded that 59 percent of small businesses used cards to meet their capital needs.
Bank loans to small businesses have been increasingly supplanted by bank credit cards. And no one is more expert that Warren on how banks exploit their cardholders. She is, by common consent, one of the leading academic authorities on the topic as well as a passionate advocate for getting cardholders a fairer shake.
Enemy of Wall Street? When necessary, absolutely. Friend of Main Street? None better. If he nominates Warren and can get her confirmed, President Obama will have found one more way to aid American small business.