Infrastructure should be benefit to small business

By Morton Marcus

Finance is confusing, manufacturing is inspiring, retail is risky, but construction is so … permanent.

What we build shapes lives for generations. We identify with the built environment. It opens us to the world and constrains our behavior in that world.

Construction is so fragmented. We know the few big firms in automotive manufacturing, telecommunications, pharmaceuticals, food processing, etc. But can you name the top firms in building highways, sanitary sewers, homes, offices, pipelines, airports, etc.?

Construction is local and layered with sub-contractors. The company that excavates does not do the paving, paint the lane markings or install the signage.

Government regulations are everywhere, yet is the oversight and enforcement adequate? Labor shortages abound despite union and non-union, public and private training programs.

For Indiana, 2015 federal statistics show 13,000 construction establishments with 117,000 employees. That’s nine percent of all business establishments and 4.4 percent of all employees. And those figures are accurate but wrong.

Construction is a seasonal activity in this climate. The employment data are only for the week including March 12. How’s your weather during the second week of March?

In addition, many firms not classified as construction companies provide services and products to construction projects. Thus the construction sector data understate the magnitudes of the activity.

Many of the occupations that support construction do not have significant barriers to entry; hence small businesses abound in construction. If you can paint a wall, you have a chance to get a sub-contract for painting a building. If you can operate a back-hoe, you might dig a ditch for a water line.

Indiana wants to promote small businesses. Construction is a place to do that. Small businesses (fewer than 10 employees) account for 81 percent of all construction establishments in Indiana and 25 percent of construction workers. Further, construction is the sleeper industry of the future.

Most politicians now know the word infrastructure. They are learning it means more than roads and highways. It means developing and redeveloping the means to reduce the damages of natural disasters. These are statewide activities, but local construction projects. Our state agencies can be at the forefront of helping small businesses participate in these important efforts.

That’s why it’s strange to see the Indiana Department of Transportation put barriers in the road for small business. INDOT requires firms bidding under certain circumstances to provide certified financial reviews. In English, that means firms need an accountant to go over their books and write a report saying all is OK.

How much does that review cost? Three, five, 10,000 dollars? The reviews must be provided to INDOT annually. It’s not a one-time affair. All it does is get the firm on a list from which it may be chosen for a sub-contract. It’s a gamble.

Is this any way to treat firms we want to help? Or are we slamming the door in the face of small firms that could contribute to our built future?

Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to letters@dailyjournal.net.