The Plot Against Small Businesses

Authored by Ash Staub via HumanEvents.,com,

If one were to consider the upward transfer of wealth and market share to Big Business since the start of the COVID-19 pandemic, one would think such economic changes were intended. After all, it’s no secret that the interests of politicians and the corporate elite align more often than not.

As we near a year of lockdowns and sheltering in place, the long-term effects of pandemic policy on the economy are becoming clearer. Almost every piece of legislation ostensibly designed to curb the spread of the coronavirus and protect workers has wreaked devastation on small businesses—while benefiting the largest corporations. Roughly 100,000 small businesses have permanently closed due to COVID-19, while big-box retailers, tech giants, and pharmaceutical manufacturers have seen record profits.

America’s small businesses currently face an attack on all fronts.

• First, there are the more visible policies (e.g., lockdowns, mask mandates, and social distancing requirements) that strongly discourage people from patronizing brick-and-mortar retailers and restaurants. These policies impact small businesses more than large chains and corporations. Small retailers, for example, may not have the space to effectively implement social distancing policies, and often lack an online infrastructure to support curbside pickups of retail goods.

• Second, the cost of complying with health and safety guidelines, and the corresponding fines if businesses don’t comply, have forced businesses to incur additional expenses while their revenue declines. According to the Small Business Administration, the cost of compliance disproportionately impacts small businesses, who lack the funds and infrastructure of large corporations to adapt to new regulation. Overhauling a business to accommodate remote work, for example, requires a flexibility and an investment of resources that many small businesses simply do not have. For dine-in restaurants, the vast majority of which are small businesses, switching to outdoor dining is often not even possible given the business’s location.

• Lastly, there are ever-evolving COVID-19 employment regulations that disproportionately expose small businesses to lawsuits and the subsequent legal expenses and damages that may result. The conspicuous absence of liability protection also disadvantages small businesses, as the largest corporations can spare the capital required to fight lawsuits and painlessly pay out any damages. For example, Publix, a large supermarket chain, has so far managed to avoid paying damages to the family of an employee who died of COVID-19 due to the fact that he wasn’t allowed to wear a mask at work.

Despite the fact that these policies are explicitly harmful to small businesses, they can be justified on the basis of “public health” and thereby shielded from criticism. Practically unlimited regulation (that always seems to benefit the corporate elite) can be defended, because such policies are said to be designed to ensure the health and safety of the public. Opposition to these onerous restrictions can therefore be conveniently characterized as “anti-science,” or worse, reckless and/or malicious endangerment of one’s community. As a consequence, policies that explicitly disadvantage small businesses, such as the Families First Coronavirus Response Act (FFCRA), can be passed under the guise of public health and worker protection without raising any alarm bells.

When considering the cumulative effects of pandemic policy, a clear pattern begins to emerge.  Every substantial piece of COVID-19 legislation enacted at the federal level has harmed small businesses while benefiting large corporations. This indicates, at the very least, a willful indifference on the part of lawmakers to the plight of small businesses, but more likely, a conscious effort to disadvantage small businesses for the advantage of Big Business.

THE EFFECTS OF COVID-19 LEGISLATION

The FFCRA, passed in March of this year, requires businesses to provide two weeks of paid sick leave for quarantined employees and/or employees experiencing COVID-19 related symptoms. It also requires two weeks of paid sick leave at two-thirds the regular rate of pay for employees who need to care for quarantined individuals, such as elderly relatives or spouses. Furthermore, employers must also provide ten weeks of extended leave, also at two-thirds the regular rate of pay, for employees caring for their children due to school closures.

The FFCRA only applies to employers with fewer than 500 employees.

It sounds absurd, but it’s correct; the businesses most capable of providing these benefits are under no legal obligation to do so, while those most affected by the pandemic are expected to incur the FFCRA’s additional expenses. While the actual cost of paid leave is reimbursed through tax credits, there is no reimbursement for lost labor and productivity, and the subsequent disadvantage compared to large, FFCRA-exempt competitors. This is not to say that businesses should or should not provide these benefits—only to point out how the policy singles out and targets small businesses.

And as small businesses shut down in droves, it’s difficult to justify this competitive disadvantage. 58% of small business owners say they’re worried about closing, while 100,000 small businesses have already closed. The smallest businesses are the hardest hit: 48% of businesses with 1-4 employees claim to have been severely impacted by the new COVID-era regulations.

Furthermore, the financial burden of the FFCRA extends beyond the simple cost of compliance. As a result of the FFCRA, small businesses have been sued over violations of employment regulations at a substantially higher rate than big businesses. Despite employing 52% of the nation’s workforce, private employers with less than 500 employees (those forced to comply with the FFCRA) were the defendants in 65% of COVID-19 related employment lawsuits; employers with less than 50 employees were the defendants in 38% of lawsuits. That means the businesses least capable of contesting an employment lawsuit, much less incurring the financial burden of liability damages and legal fees, are the businesses most often sued. 

Thus, the FFCRA has imposed financial obligations on small businesses while exempting big businesses. Small businesses are forced to pay the cost of complying with the FFCRA, while big businesses are not. Small businesses are at risk of FFCRA-related lawsuits; big businesses are not. The FFCRA clearly disadvantages small businesses, and expecting small businesses to incur the cost of the FFCRA while their revenue plummets, and their corporate competition profits, is a recipe for widespread small business bankruptcy. 

And that is exactly what’s happening.

This is a feature, not a bug, and calls into question the true purpose of the FFCRA. There is no good-faith reason for big businesses to be exempt from the FFCRA that would also not apply to small businesses. Furthermore, if the FFCRA really was designed to protect workers, why only cover half the workforce? Why exempt the largest employers? Are Walmart employees privy to some germ-repelling magic elixir, thereby absolving Walmart of the same responsibilities demanded of small businesses? The fact of the matter is that the FFCRA is more interested in transferring the market share of small businesses to giant corporations than protecting workers.

Federal relief, or lack thereof, reinforces this claim. The CARES Act, the 2.2 trillion dollar federal stimulus bill passed in March, offers a lifeline to small businesses in the form of the Paycheck Protection Program (PPP), a loan issued at a 1% interest rate. Yet the loan only covers roughly ten weeks of payroll expenses, and applications closed in early August. It is now early December, and further financial aid to small businesses has yet to be legislated. Moreover, while the CARES Act offers $349 billion in aid to small businesses, it provides upwards of $500 billion to large businesses, in effect rewarding the businesses already profiting off the pandemic, to the detriment of the small businesses suffering the most.

Relief in the form of liability protection is also not forthcoming. The HEALS Act, a stimulus bill which would include COVID-19 liability shields for all employers, has been tied up in the Senate since July, with much of its delay attributable to opposition to its liability protections. Senator Kirsten Gillibrand (D-NY) is among the more vocal opponents of liability shields, arguing that businesses would be “off the hook” if an employee or customer were to contract COVID-19 at a business establishment, thereby permitting businesses to neglect health precautions. “Without any ability to hold an employer [liable],” Gillibrand argues, “then you’re putting a lot of workers and a lot of Americans across the country at grave risk.”

Even though big businesses are actively lobbying for and would benefit from liability shields, it’s clear that withholding liability protections disproportionately impacts small businesses while favoring corporations with the most capital and access to quality legal representation. A retail giant such as Target, which has unsurprisingly profited off the pandemic, can easily afford to pay out any liability damages. Moreover, Target has the resources to contest the claim in court. But a family-owned consignment store? A single lawsuit may well bankrupt the business. And as small businesses are the defendants in a significantly larger portion of COVID-19 related lawsuits, the absence of liability shields contributes to their demise.

Though the lack of liability protection legislation can partly be attributed to garden-variety legislative sclerosis and inefficiency, its absence disproportionately affects small businesses. The degree to which this is intentional is unclear. What is clear, however, is that Congress is well aware of the difficulties facing small businesses given the fact that small business stimulus legislation has been discussed since July, and that the lack of liability protection exacerbates these difficulties, but it has done nothing. This continued inaction as small business bankruptcies and lawsuits pile up is at the very least tantamount to indifference, and therefore tacit approval.

Unless our policymakers are woefully incompetent, the intent of policy cannot be divorced from its effect. And the effect of COVID-19 policy on small businesses has been devastating. Relief is nonexistent, as is the case with liability shields, or inadequate, in the case of the PPP. Public health and worker/customer protection legislation is explicitly harmful to America’s small businesses in the cases of the FFCRA, lockdowns, and onerous restrictions. 

If one were extremely charitable, the lack of liability protections can be attributed to callous indifference, and the inadequacy of the PPP can be chalked up to sclerosis and bad policy. Lockdowns and health and safety obligations have public health justifications. But the FFCRA’s targeting of small businesses is indefensible. There is no reasonable explanation for the FFCRA to not apply to Big Business other than to disadvantage small businesses.

When considered together, these policies have demonstrably harmed small businesses while favoring big businesses. The systematic transfer of wealth and market space from small businesses to large corporations is entirely the result of government policy. Again, intent cannot be separated from effect, and the lack of persuasive arguments justifying the targeting of small businesses by policymakers can be explained in simple terms: pandemic policy was an intentional effort by policymakers to facilitate an upward transfer of wealth to Big Business at the expense of small business.