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What Obama gets wrong about corporate America

Rick Newman
Senior Columnist
MILWAUKEE, WI - FEBRUARY 15: U.S. President Barack Obama speaks to workers at the Master Lock factory on February 15, 2012 in Milwaukee, Wisconsin. Obama applauded the company, which he cited in his State of the Union address, for bringing back 100 jobs to the U.S. from China. (Photo by Scott Olson/Getty Images)

President Obama is generally correct when he says corporate America has thrived during his administration. But he also does a disservice to the Main Street economy — which is still struggling in many areas — by lumping it in with a big corporate sector that has had the wind at its back for five years.

Obama lobbed a few barbs at 1 percenters in a recent interview with the Economist, referring several times to “corporate CEOs” who, in his view, have little to complain about. “Feel free to keep your house in the Hamptons and your corporate jet,” Obama said. “I’m not concerned about how you’re living. I am concerned about making sure that we have a system in which the ordinary person who is working hard and is being responsible can get ahead.”

Between Fortune 500 CEOs and Obama’s Everyman, however, there’s a vast group of small and midsized companies that are crucial to the company — and many of them are struggling, with no help from Washington or anybody else. And few of them are run by hotshots with Gulfstreams or beach homes.

The booming stock market has been terrific for large-cap multinationals that can raise billions in cheap capital and park profits overseas to boost their bottom line. But small companies haven’t done nearly so well. Here’s a chart showing the performance of the S&P 500 index — which represents big firms — followed by another chart showing small-business optimism, as calculated by the National Federation of Independent Business:

Source: Google Finance
Source: NFIB

While big companies have been enjoying record profits and stock prices, small-business optimism has been stuck far below long-term trends. Another measure, the Intuit Small Business Employment Index, shows that hours worked and compensation have actually fallen this year at firms with 20 workers or fewer — a sign of anxiety that belies the health of big firms and the soaring pay of big-company CEOs.

Perhaps the most worrisome sign of trouble in the Main Street economy is an anemic pace of business startups. New research by the Brookings Institution shows the pace of new-business creation has been declining for 30 years, with the drop intensifying during the last five years or so. The rate of new business creation now is only about half what it was in 1978. New businesses are vital because they tend to grow the fastest and hire the most, whereas big companies are more likely to consolidate and do whatever’s necessary to boost their share price — which often includes cutting costs and payroll. Perhaps it’s no surprise we have chronically high unemployment at the same time there’s a shortage of startups and younger firms.

Obama, like all other politicians, tends to give rah-rah lip service to the Main Street economy, but his administration hasn’t exactly gone out of its way to help. Early initiatives such as the bank and automaker bailouts (some begun by Obama’s predecessor, George W. Bush) and the 2009 stimulus program were generally meant to direct aid to the top of the economic food chain in the hope it would trickle down. Some trickled, some didn’t. There’s very little stimulus Obama can point to that bypassed Wall Street and the big players and went straight to Main Street. Among them: limited aid for struggling homeowners and a ramp-up in small-business lending that some business owners say is more trouble than it’s worth.

What Obama could do, if he wanted, is find a way to drastically reduce the thicket of regulations and the paperwork burden that plagues many businesses. In his Economist interview, Obama scoffed at businesspeople who complain about being overregulated. “They always complain about regulation,” Obama said. “That’s their job.” Then he ticked off a list of things going right — soaring stock market, record corporate profits, etc. — that supposedly proves all the whining about overregulation is baseless.

This is where Obama tosses average business owners under the bus. He’s right that big companies can put up with additional regulation, especially if it safeguards something important or helps make the economy more stable. But smaller businesses don’t have a huge legal department or even a compliance officer to manage complex rules and mountains of paperwork. “If you look over time, the number of rules has just proliferated,” says economist Robert Litan of the Brookings Institution. “The cumulative weight of regulation — federal, state and local — is probably the most important impediment to starting a business.”

Obama can’t do anything to change local zoning rules or statewide licensing requirements. But he could probably curtail some of the federal rules that smaller firms have to deal with, including ones that duplicate or even contradict state and local rules.

There are two other things Obama could do to give the Main Street economy a helping hand. First, he could use his position to rally regulators at all levels to prune their rulebooks and give business owners and wannabe entrepreneurs a break. Second, in a sign of good faith, he could show he knows the difference between a Fortune 500 CEO and an entrepreneur in shirtsleeves working 60 hours a week to keep a business running and a handful of employees paid. Corporate CEOs aren’t all whiners. The ones without jets, in fact, often get the job done with the least amount of complaining.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.