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“It's time to stand up - not to cheer, but to fight back.”
--Senator Russ Feingold, On Executive Power. (Daily Kos, 2006-02-02)

Wednesday, May 24, 2006

Economic growth for everyone - is it possible?

No - it is required!

So often I hear that we Progressives do not have real ideas of how to grow an economy so real growth is achieved for all. During the Clinton years the ones who are middle class did extremely well, especially during the "Dot Com" years. But still the unlucky ones at the bottom half of the income ladder were left behind or forgotten both in America and globally. And here I do not even include places like the Democratic Republic of the Congo or Rwanda.

For purposes of "political capital" both Parties have claimed success on the economic front if the very largest American companies have big success both at home and abroad. This short sighted view has seemed to be a result of the vast amounts of money that is needed to be elected in America and to stay in power. Money that big business or big interests are more than willing to exchange in vast amounts for the right access to the Oval Office or the Halls of Congress. Remember the Banking and S&L scandal of "ages ago"?

I suggest that a true Progressive recipe for economic success is based on the belief that real success for the ones at the lower half of the economic ladder is the only real measure of economic success as a country that believes in the value of people. If you only believe in the value of capital gains or shareholder value then you love the America we all have created. If you believe we ALL can have a direct economic benefit then you have to vote of a real change this November and in 2008 vote for Feingold.

As a country America need to again believe and act on the belief that when one person slips below the poverty line we as a "Human" nation are failing...because we are. The article below is but one idea that will work as well for a single mother or father struggling to feed their kids in Iowa or Texas or Georgia as it would for the small business owner in Slovakia.

The article originally appeared in the American Chamber of Commerce in Slovakia monthly magazine (http://www.amcham.sk/upload/connection/20-21.pdf)


SME's – Slovakia'’s Best Hope for an Accelerated, More Dynamic and Brighter Economic Future for Everyone

The miracle of the Slovak economic turnaround has been a remarkable regional economic success. Large enterprises are coming in and setting up one large factory after another. The economic outlook is particularly bright for the shareholders and management of the many multinational companies that have discovered Slovakia. If this positive economic news is to create a vibrant, dynamic growth engine for all in Slovakia then much more attention must be given to solutions that will incorporate more successfully the domestic and international small and medium sized business community into this remarkable economic success story.

SARIO, Slovak Investment and Trade Development Agency, has recently announced that over 300 large investments have created approximately 9,000 new jobs. This great investment success has unfortunately also revealed an increasingly obvious reality - there are not enough qualified managers and factory workers who are able or willing to accept many of these newly created jobs. Currently there are just not the required numbers of qualified middle managers and factory workers available to sustain so many, large diverse factories. Increasingly many of these large investors have been forced to look outside Slovakia to source the necessary workforce. In the long term the low salary cost reasons that drove most of the current investment decisions will prove increasingly difficult to realize if more and more of the required workers have to be sourced from outside Slovakia.

Now that an adequate base of large investment successes has so artfully been developed it is now time to move beyond these first, small economic measures and begin to focus resources and financial incentives on building a strong, dynamic, versatile small and medium sized business community. As the Slovak News Agency recently pointed out "“Ministries which coordinate the social and economic politics of Slovakia like to show people macroeconomic mega-success of our country. But they seem to forget that the successful economy must go along with raising living standards. The living standard rises at a snail's pace. Well, it is better than nothing, but the fact that one fifth of Slovaks live above the poverty threshold is a catastrophe."”

It is no secret that in every single growing, thriving, developed, free market economy economic success is always based on the fortunes and treatment of the small and medium sized business community. By most measures of economic activity such as GDP or new job creation, between 75% to more than 90% of all real growth is directly and indirectly attributed to the contribution of the small and medium sized business community.

In Slovakia there are many inequalities that small business faces as it struggles to compete efficiently. This situation for the small business community is more challenging since many of the laws governing the economy are now just being codified. The range of inequalities touches everything from the privatization process, the granting of service providing licenses, tax laws and the legislative influence process. It now appears to be time for the Slovak business and political communities to explore the possibilities that even greater prosperity and political stability for the citizens of Slovakia resides in the fortunes of the small and medium business community.

A few examples of these inequalities may help to illustrate the depth of the current imbalance in the system. As the first example let’s look at the tax rate. The large domestic and foreign business community usually disburses income from the business via some sort of a dividend that is exempt from taxation in Slovakia. For the small business owner they are usually forced to pay 19% tax on income they take from the business. Additional when they spend this income on other purchases they are required to pay the 19% VAT. Another inequality is in the money the government provides to large investors in order to assist them take advantage of the many benefits of conducting business here in Slovakia. SARIO is an example of a government-funded entity that is established to assist only large foreign companies locate and set up business in Slovakia.

As with other issues that have arisen in Slovakia over the years, the debate over the business direction for Slovakia has always centered on discovering a Slovak way to get the job done. The domestic and international small business community is primarily interested in developing a level playing field between large and small business. If incentives are offered to the very largest multinational companies to create jobs then it only makes good business sense to offer incentives at the same level to the small and medium sized business community that has demonstrated how much better it is at creating more long lasting jobs and growth than the large companies. If the small and medium business community would be given a real voice in developing solutions of economic policy there is a chance the benefits of an economic turnaround would benefit a far greater portion of the Slovak population. As we have seen over the last few years that Slovakia has relied on large business advisors to develop solutions for the large business community it now also makes wise economic sense to develop a method for the small and medium business community to have a voice in how to improve, expand and grow a more broad based economic recovery in Slovakia.

One possible solution would be to create a strategic economic partnership similar to the Small Business Administration (SBA) in the US. The SBA is the "“The voice for small business in the Federal Government"”. The SBA has a fairly good record at ensuring the special requirement of the small and medium business community is considered in all areas of American business life. The laws governing business including taxes, public procurements and privatizations should not be dominated by only one segment of the business community. Totally new Slovak small and medium sized business models must be developed from the viewpoint of a large and small business partnership if continued widespread job creation and living standards is the desired outcome.

The government and large business needs to view SME'’s as equal partners with valuable insights into how to economic activity over a wide segment of the Slovakia business community. Large companies must be willing to actively encourage matchmaking activities where SME'’s can take an active part in subcontracting possibilities for tenders or other business activities. Tax law needs to be changed to take away the small and medium sized business double taxation burden. The government must actively look for ways to provide education, access and infrastructure development incentives on an equal footing as what they provide the large investor. If the small business community is to flourish and expand then a government or NGO entity similar to the American SBA must be established to foster a public-private partnership to effectively assist a much greater number of Slovak and international small business community member also say with conviction "“Slovak is a great place to live and succeed in business"”.

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