Second Annual Report to the Congress on the State of Small Business

To the Congress of the United States:

I am pleased to submit my second annual report on the state of small business. Nineteen ninety was an exciting year for small enterprises internationally -- a year when new winds of economic freedom blew strongly across Central and Eastern Europe and the Soviet Union. It was also a year of new and difficult challenges, as citizens of those nations struggled to build new free market economies.

American business also faced new challenges in 1990, as the economy slowed after nearly 8 years of expansion. Gross national product grew more slowly in 1990 than in previous years and real business earnings were down from the previous year's level. Fewer start-up businesses opened their doors than in 1989, and more businesses closed.

Yet even in this slower growing economy the strong spirit of American enterprise flourished, as small businesses continued to hire and train almost 9 out of 10 of America's new private sector workers. Research indicated that small business owners also tend to retain their employees longer in economic slowdowns.

Evidence of women's and minorities' impressive strides into business ownership continued to surface. Newly available census data indicated that women's business ownership jumped by more than 57 percent from 1982 to 1987, while business ownership by Black Americans increased by more than 37 percent.

We have much to celebrate in the fact that American business ownership increasingly reflects our great national strength -- our diversity. The 20 million individuals who own small businesses continue to make remarkable contributions to the vitality of our economy. I believe that, working together, government and the private sector can make the economic environment even better for small businesses and for all Americans.

My Administration is committed to opening doors to free and fair trade, so that more American entrepreneurs can compete globally. For example, thanks in part to the "fast track" authority recently approved by the Congress, we will continue to improve our trade with Mexico, where 85 million people buy 70 percent of their imports from the United States. And the United States-Canada Free-Trade Agreement is stimulating trade with our northern neighbors.

Another priority is to reform our pension system. In small firms, for example, only 25 percent of employees are covered by pension plans. Often for legitimate business reasons -- but at a significant cost in retirement security for employees -- fewer pension plans are being formed than in previous years. We can do better. We can increase pension portability, pension accessibility, pension flexibility. We can eliminate some of the administrative headaches associated with pension plans, and my Administration has been working on legislative proposals to do just that.

I believe we can and must make health care more available and affordable -- especially for those 35 million Americans without health insurance. Unfortunately, many of our Nation's uninsured are workers in small businesses, which employ many older, seasonal, and temporary workers -- higher risk, higher cost workers from the standpoint of health insurers. These small firms often find the financial and administrative costs of health insurance prohibitive. We have many minds working on that problem in this country -- and I think it will turn out that the best solutions are local ones, rather than national Government mandates.

We can free up more capital for investment in new products, new processes, new technologies, new ideas. Decisions about which new ideas are worth investment are best made by those who have the most to lose -- the investors. It makes sense, then, that incentives to invest more -- as we have proposed in the form of lower taxes on capital gains -- will help channel new capital to good ideas, innovations, and businesses. That in turn will mean more economic growth and more jobs for Americans.

Another urgent priority for our Nation is education. We are not making the grade in education, and that threatens the ability of workers to perform their jobs and the ability of our Nation to compete in a global market. We have been working with the Governors to develop a set of goals that will make American students first in the world in math and science and make every American adult literate by the year 2000. Small businesses, which employ many of our entry-level workers, are on the front lines of this war against illiteracy, and their involvement will be key.

It is certainly true in this last decade of the 20th century that the big picture -- the national and international view -- is exciting as new democracies are formed, new leaders take the stage, nations move towards market economies. But I am more and more convinced that real change happens mostly at the small level, the local level, the individual level -- in the millions of places where new ideas are born, new enterprises are established, new workers are trained. I am confident that individually and together, in the spirit of American enterprise, we will meet and surpass the challenges before us.

George Bush

The White House,

October 28, 1991.