Last week, the Wall Street Journal reported that there was concern that small businesses do not have access to loans, and that extra effort was needed to change that. The article makes a major mistakes: the primary source of funding for small business is the earned wealth and sweat equity of the owner. There is a regular confusion in monetary policy that credit is the equivalent of capital, and by increasing credit that is available, there would be an increase in capital.
Capital is not money, but all resources, including the knowledge about how to use those resources. Credit is not that of all. Credit is borrowing someone else's money so that they can earn a return from it. How well that money is used is another story, but that borrowed money does not drive a marketplace.
No, small businesses need markets, not loans. Small businesses need the ability to earn a return for the risks that they take, and poor financing schemes sap those returns and create more risk. This is why small businesses need to build up their own capital, not someone else's.
The most efficient thing would be to lower tax rates. That would give owners incentive to work harder and make their sweat equity worth something. Small business owners often have to put up their personal assets as collateral for their loans, this makes them far more careful and efficient in allocating their resources in their business. That is, they only borrow after they have already detected an opportunity, and already invested their own business resources, and then pledge their own personal assets. They cannot build up the wealth to use as collateral to finance their business if it is taxed away.
Loans is how we got into this financial mess in the first place. We need more risk-taking by people who risk their own assets, not someone else's.
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Credit cards are far more common today for financing business startups, especially personal service microbusinesses. I would think that for small contractors their Home Depot credit card is far more critical than any loan they get from a bank. The credit card market is far more efficient and flexible than is commonly acknowledged.
They are not just loans. Credit cards serve an important bookkeeping function, and the companies can help resolve disputes. When paid promptly, there is no interest fee. These are not the same as loans, and should not be considered so. If one studied them carefully, it is likely that they would be found to be far more important than SBA loans in the support of business, yet the big government loans get all of the headlines, while the mundane charges at Home Depot or Staples or (gasp!!) a print shop, are not on anyone's radar.
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Despite what seemed like good news about inflation, we actually had bad news this week. The Producer Price Index was very bad. Compared to the first 6 months of 2008, it was +4.2%; compared to the last 6 months of 2008, it was +9.5%.
The Consumer Price Index looked good on the surface because of easy comparisons to last year. But since December, the CPI is at an annualized rate of +5.1%.
Printing prices down -2.4% annualized rate since December. That's mainly a reflection in a decrease (finally) in paper prices. Profits will still be hard to come by.
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The print trade surplus is back, now 50% higher than imports for the first five months of this year.
Print imports for the first five months of the year are down. Imports from China are down -$155 million, imports from Canada are down -$144 million.
Overall, print imports are down -25%. The print surplus is $700 million or 50% more than imports.
Yet there is still some worry about printing imports from China and other places. Imports have always been equal to about 3% or less of industry shipments, and exports have been about the same, and execpt for a few years when they were about even in the middle of this decade, were higher.
Overseas printers have the same competitors domestic printers have: web sites, digital media, portable documents, desktop printers, computer servers, computer storage, desktop printers, and search engines. If cheap printing from overseas could “save” print as a medium, it would have done it by now. Printing imports are losing ground just as domestic printing is because of the alternative attractiveness of digital alternatives.
What is so disturbing to me is that we as an industry should be investing in these printing businesses overseas because they are growing markets with growing populations and rising wealth. We should be celebrating the growth of print overseas, and participating in it through investment. If you believe in print, you invest where it grows.
We know, even since Adam Smith wrote in 1776's “Wealth of Nations,” that tracking imports and exports and keeping score of surpluses or deficits is meaningless and counterproductive. Our economy has always grown most at times of trade deficits. The main reason is that the goods that are imported still need to be processed or still need to reach consumers. There is more money in the processing, transportation, distribution, and marketing of these goods. The best article in the last few years about this is “We Think, They Sweat” by analyst Andy Kessler. It's about where the profit in an Apple iPod is actually realized.
Even if the U.S. banned all print from overseas, it would hurt Canada most. It would also not affect the demand for print, because it would not do anything to stop the constantly decreasing cost and increasing benefits of electronic communications. In any battle, fighting the right enemy of primary importance.
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