On Tuesday, I participated in a workshop sponsored by Intuit and Emergent Research, on the latest addition to their “Future of Small Business” series, Defining Small Business Innovation.  The report authors, Steve King and Carolyn Ockels of Emergent Research, define innovation more broadly than many policymakers and academics.  To them, more small businesses are innovators than even the owners might admit to.  When they interviewed small business owners, many of them said that they did not innovate, but then they went on to describe various tweaks and processes that they had come up with to improve their firm or to better compete.  Indeed, they were innovators (even if they did not know or want to admit it).

When you mention innovation, most people think of technology.  For that reason, much of the research in this area focuses on patents, but not all innovation can be quantifiably measured.  Steve King and Carolyn Ockels have set a harder task for themselves by defining innovative capacity more broadly.  From a researcher’s perspective, innovative tweaks, such as a service-level improvement or re-engineering business strategy to focus on a new niche, are harder to quantify than measuring tangible technological changes.  But, that does not diminish their importance.  Another challenge is changing people’s perceptions of what an innovation is.  As a result, policies that might encourage greater technological innovation are different than might be prescribed for a much broader definition. 

I look forward to reading future reports, some of which will stem out of the discussion today, on this topic from Intuit as part of their series.  Good job so far.

Chad Moutray

Chief Economist

            Connecticut legislators are currently considering a bill that will help improve the regulatory climate for small businesses in Connecticut.  House bill 5930, sponsored by Rep. Diana Urban, D-Stonington, would require state agencies to consider the costs to small business of proposed regulations.

            Representative Urban discussed the importance of this legislation in a recent Hartford Business Journal Online article. 

 “We all know that small business is the economic engine for this country,” she said. “Knowing the importance of small business to our economy, it only makes sense to do what we can to help them.” 

            Current law already directs agencies to conduct a regulatory flexibility analysis.  The bill would require that the business cost impact and regulatory flexibility analyses be completed when the rule is first proposed, rather than “prior to the adoption of the proposed regulation.” The change will provide small businesses an opportunity to alert regulators to unanticipated costs and less onerous approaches to achieving their regulatory goals.  The bill also expands the definition of small business from businesses employing fewer than 50 employees to businesses employing fewer than 75.

            The bill gained unanimous approval from the Joint Committee on Commerce and was filed with the Legislative Commissioners’ Office on March 11^th.

– – Kate Reichert, Regulatory & Legislative Counsel

      On Feb. 27^th I presented a paper titled “Small Business Training and Development: Analysis of Recipients, Types, Location and Incidence Levels Using SIPP Data” at the 35^th Annual Eastern Economic Association Conference at the Sheraton New York in Manhattan.  The paper was based on an analysis of the latest training data released by the Census Bureau.

      An expected finding was that workers in small firms (<100) are much less likely than workers in large firms (100+) to receive training by any definition and measure used in Census’ 2004 Survey of Income and Program Participation (SIPP).  However, there were several unexpected findings such as a decline in employer-provided formal training from 1996 to 2004: other research found an increase from 1984 to 1996.

      In addition, this paper discovered that women are more likely than men to receive training during the previous year.  One commentator suggested that many of the findings could be viewed through the lens of “dual labor market” theory.  The presentation also highlighted future slow labor force growth, due to a smaller pool of younger entry-level workers and an aging workforce.  This will challenge small firms who have tended to hire and train younger rather than older workers.

      Key aspects of the presentation can be found in Chapter 5, “Small Business Training and Development,” in the 2008 Small Business Economy located on the SBA’s Office of Advocacy’s website.

– Jules Lichtenstein, Senior Economist

Ok. So, it’s a new Administration, a new Congress, and new times for the small business legislative and regulatory world.  Congress is holding hearings on the midnight regulations that went into effect at the end of President Bush’s term. At the same time, President Obama issued a memorandum on January 30 directing the Office of Management and Budget to take a fresh look at EO 12866, “Regulatory Planning and Review,” which dates to the Clinton era.  Hmmm . . .  Seems like the perfect time for a regulatory reform roundtable to talk about EO 12866 and the Congressional Review Act  (CRA).

Who better to speak on a panel on 12866 than American University Professor Jeff Lubbers, who wrote the book on federal agency rulemaking; Paul Noe, a former counsel to OMB’s Office of Information and Regulatory Affairs; and Jim Tozzi, the former deputy administrator of OMB?  What a treat!  Jeff provided a wonderful backdrop for the discussion by explaining the history and purpose of 12866.  Paul talked about what should change and what should stay the same. And Jim talked about the small business implications of 12866.  Their opening statements were followed by an energetic exchange of ideas by the panelists. It was so lively that we went over time and still had some things left that could have been discussed.

How do you follow a show like that? Well, it’s hard but our Congressional Review Act panelists rose to the occasion. First, the Congressional Research Service’s regulatory expert, Curtis Copeland, provided background information about the Congressional Review Act. Two authorities from the House Small Business Committee gave some insight from the standpoint of Congress—Barry Pineles, minority counsel, and Erik Lieberman, majority regulatory counsel. It was a heady discussion on the current CRA and some possible alternatives to it from the people who know it best. 

The 75-plus members of the audience definitely had a lot to digest after that roundtable. I know I did.

—Jennifer Smith, Assistant Chief Counsel