Sen. Elizabeth Warren (D-Mass.) has been courting black voters aggressively with recent stops at the women’s Essence Festival and South Carolina. At the Essence Festival she touted her plan to “level the playing field” for black, minority and female entrepreneurs. She’s promising yet another taxpayer-funded giveaway: a new $7 billion fund for minority small business owners.
Encouraging entrepreneurship is a great aim, but her plan is fraught with pitfalls. Doling out grants without accountability, financial guidance for recipients, or oversight on the program is certain to introduce waste, corruption and error.
By providing grants rather than loans, it removes the “skin in the game” that motivates entrepreneurs to work hard to generate income and repay those loans to banks or relatives. No one is paying back the funds they receive, so the fund is unsustainable in the long term.
Warren is focused on improving access to capital, but instead of looking at taxpayer wallets, she should focus on helping people to save to start their own businesses.
According to the Kauffman Foundation, personal and family savings are by far the largest source of startup capital for entrepreneurs: 64 percent for all firms, 71 percent of black firms, 72 percent of Hispanic firms and 73 percent of Asian firms. However, Warren voted against and continues to criticize the 2017 tax cuts, which provided much-needed tax relief to small business owners and tax savings for individuals which they could use to start or support their enterprises.
Over 1,800 new businesses were started each day by women from 2017 to 2018. Black women had the highest rate of growth among women business owners.
Many of them sell products like makeup, leggings and sporting goods directly to family, friends, co-workers and neighbors, which gives them the chance to not only increase their income but also structure their time and work-life on their own terms.
There are 6.2 million people who sell products and services directly to consumers and 75 percent of them are women. Most direct sellers (over 5 million people) choose to sell on a part-time basis. The flexibility to determine how much or little they work is likely what attracts parents of young kids, students, retirees, caregivers and military spouses to this profession.
In the past, Sen. Warren has called for streamlining our labor laws to lump all workers together under one set of regulations. That’s takes the wrong view of the work arrangements of today’s entrepreneurs. Direct selling is just one facet of the changing workforce that is rapidly evolving from traditional 9-5 jobs.
The gig economy is full of workers who are freelancers or work independently. According to Gallup, more than one-third of U.S. workers — about 57 million people — are in the gig economy. For 29 percent of U.S. workers, an alternative work arrangement is their primary job — including half of part-time workers.
There is new legislation that aims to preserve these kinds of flexible work arrangements by amending the Fair Labor Standards Act (FLSA) to clarify that direct sellers are not traditional employees and should not be subject to the same labor regulations as traditional workers.
This would be a big step in the right direction toward common sense.
Clearly, direct sellers are distinct from traditional employees. They are truly their own boss. They determine when and how often they work and often work in bursts of time. Because of the unpredictable nature of sales, they cannot control how much they earn or take-home.
Direct sellers conduct business outside of the traditional retail setting and online marketplaces. Instead of showrooms, stores and selling websites, direct sellers work from home and may host parties or sell directly to consumers online. They also use their own computers, equipment and materials to sell products. Compare this to when a new employee begins working at a company, they often get assigned a company-owned desk, computer, phone and software to use.
Without the added overhead of real estate and equipment, the start up costs are low enough to attract people of varying income levels to start their own businesses.
Flexibility, independence and low-entry costs provide compelling reasons for why direct sellers should be treated differently from salespeople and traditional employees.
Elizabeth Warren’s $7 billion fund is unlikely to materialize, but women and minority business owners can launch their businesses with confidence because pro-growth policies are leaving more income in their hands.
Also, Congress has a chance to ensure that the benefits of direct selling are protected and the entrepreneurial nature of the industry is recognized under federal law. This will make sure that more people are able to pursue their American dreams.