printThe Economist: “It is true that small companies create jobs, especially when they are first born. And small companies destroy millions of jobs when they die—which is often. In fact, only a small fraction of smaller enterprises are capable of generating sustained growth of very many jobs. Yet lawmakers of both parties fall over themselves as the protectors of small business, creating programmes that often help big corporations (and wealthy hedge-fund managers) as much or more than favoured smaller enterprises.”
The Economist’s statement, being the Economist, is somewhat incoherent, at least in its tenor. The writer editorializing, being of the Left, wants the politicians to help small business, even though his facts tell him the returns on such assistance are minimal and that small business is not necessarily the engine of economic growth.
Of course, contra the SE Cupp cool model of “capitalism,” helping big business is as capitalistically crony as helping the smaller concerns.
UPDATE: To Robert G.: Yes, indeed, and WHAT IS AN OPEN ECONOMY?
“The voluntary free market is a sacred extension of life itself. The free market—it has not been unfettered for a very long time—is really a spontaneously synchronized order comprising trillions upon trillions of voluntary acts that individuals perform in order to make a living. Introduce government force and coercion into this rhythm and you get life-threatening arrhythmia. Under increasing state control, this marketplace – this magic, organic agora – starts to splutter, and people suffer.”—ILANA (April 23, 2010)
True too is that Big Biz was once small biz.
“Small business as the engine of economic growth,” is a specious statement. It sounds good on paper, but where, exactly, has this been proven? Most businesses fail within the first five years; high tech businesses fail sooner than that, I think.
There was a huge debate over the summer that touched on this subject. The brilliant Andy Grove, one of Intel’s founders, made the very clear point that massive job growth occurs by _scaling up_ existing concerns via manufacturing. http://www.bloomberg.com/news/2010-07-01/how-to-make-an-american-job-before-it-s-too-late-andy-grove.html
The engine of growth appears to be…big business…or intermediate business…but certainly not small business.
I thought it was an open economy that created jobs, silly me.
A free unfettered market is at its core a highly integrated, complex, system of systems that is mathematically unstable. This instability can be a good thing as anyone with any experience with the “good side” of compounding interest or stock growth can attest.
In my humble opinion, based on experience with other complicated mathematical systems, this is also the cause of the so called correction cycle. When government tries to “smooth-out” the time between corrections may be longer but, the corrections or recessions tend to be deeper and longer. Two perfect examples are the “Great Depression” and the current mess we are in now.
Not being an economist I’ve probably said more than I know about the topic. However, I think my systems engineering and mathematical instincts serve me well here.
The influence of small business may be overstated but, I’ve managed to spend most of my career working for small businesses. Several grew large enough to be sold to larger companies at a great profit to the stockholders and others are continuing to grow. None of these companies have gone out of business.
I have worked for small, family-owned businesses my entire life. It has always been my opinion that most of the programs aimed at “helping small business” have in reality been corporate welfare packaged in such a way that the public is bowled over. This is precisely how folks, particularly Heartlanders, are able to feel all warm and fuzzy about the Farm Bill, which is nothing more than corporate welfare and does very little for the small farmer or rancher. We have certainly never seen any benefit to these aid programs that I can think of. All it does from my perspective is artificially increase the number of competitors, and make sure they stick around long after they should’ve called it quits. I believe that a compelling case can be made that all this “help” actually sabotages other established small businesses, and serves to drive marginal ones under. Our little town is a perfect example of this. You have five or six decent dry goods stores here serving tourists and the surrounding smaller towns, but you have a good dozen and a half stores that blow in each year with the tourists. Most of them die the following summer or fall. Now, it is bad enough that we the capitalized get screwed when these jokers liquidate, but to have all taxpayers take the fall too is ridiculous. If they cared about the small businessman or the family farmer, they would abolish the Estate Tax.
Brett what we see in the defense industry is the category of small businesses that are called disadvantaged. They are typically minority or woman owned. These companies have a tremendous competitive advantage and seem to have less desirable benefit packages (in general). I agree that many of the programs to help small busineses have many unintended consequences. For example a Woman owned business can be owned by the wife but the husband may have all of the technical and business savvy. It’s an interesting racket. However, having said that I have worked for some very good and well run small companies.
Don’t get me wrong. I would not do it any other way than I have, and all of the family businesses have so far survived.
The extended family is involved in a variety of businesses, mostly in equipment repair (ranging from vehicles to agricultural) and small retail. Many businesses in these fields fail. If you are willing to work hard enough, and are able to keep focused on a coherent vision, it is certainly doable, though.
As the female owner of a highly-qualified small business who tried unsuccessfully to get a defense/aerospace sub-contract for nearly a decade, I can assure you that I have failed to find competitive advantage in my “woman-owned” status. I wish I could get all the money back that I have spent traveling to procurement meetings, networking events, and writing proposals that ultimately ended up in somebody’s wastebasket. I am sure my academic/research partners would have found their time better spent, as well.
Getting business from the government is ultimately about contacts. If you have the contacts, you’ll get the business. If some fellow can put his wife up as CEO and claim “disadvantage” that way, then it does “work” and yes, it is a racket. But if the “system” was designed to help individuals like me, it is an abject failure.
[I already told you, B., it’s female mediocrity that thrives in America. If you’re an IQ outlier, are as good as a man; forget about it.]