Recently I read a fascinating essay by Michael Lewitt called “The Death of Capital” (based on the book of the same title). Lewitt shows how our financial system (including the federal government) has become an instrument that does not encourage growth of our economy but rather rewards speculation. The Wall Street bailouts, and their use to aggrandize a few at the expense of all American taxpayers, are an example of how we have privatized gain while socializing loss. The credibility of the security rating services has been dealt a severe blow as we have seen how they failed in their primary mission – to accurately inform investors about the risk of investments. As a result, there is widespread mistrust throughout the financial system. This has important repercussions in terms of community resilience.
When disaster strikes, businesses can’t rebuild without financial resources; for most that means credit. The mistrust that has become endemic in our financial system has upped the ante for businesses seeking credit. More information is needed; more security is needed; but less credit is available. The burden of proof of creditworthiness has almost gone beyond the reach of many small businesses.
Earlier in the day I had a phone call from a friend in Nashville. He told me about a vet there who had nearly been swept away twice while trying to save the animals in her care. As the owner of a small business, she is desperately trying to recover and rebuild after the flooding that occurred. She is discovering what too many have found before – there is little help for Main Street when disaster occurs. There is a smattering of private credit available for recovery. The federal Small Business Administration offers low interest rate, long-term loans, but the already high burden of proof of creditworthiness becomes almost unreachable for disaster-crippled businesses. And then there is … nothing else for our small businesses.
In propping up those “Too Big to Fail,” we seem to have forgotten the real engines of our economic growth and vitality – the tens of thousands of small businesses across the country. As we strive to make our communities and our country more resilient, we need to recognize that our small businesses are a crucial part of our communities and that they deserve special attention. I don’t have an answer but I do know that without one, our efforts to make our communities more resilient will fail.