Uncle Sam Doesn't Know Much About You

Unless small businesspeople demand that the U.S. collect better information, nobody will know how important they are.
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How much really useful information does the United States have on the largest segment of its economy, small business? Remarkably little. There is no comprehensive small business data source.

Without one, it's almost impossible to document how much legislation that benefits small business would benefit the nation as a whole. And unless small businessmen get almost as incensed about the lack of data as they are over excess regulation, paperwork, and taxes, it's entirely possible that we'll never get the data base we need.

All the existing sources of data are deeply flawed. Detailed Internal Revenue Service information, based on tax returns, is four years old when it becomes available. It provides no regional breakdowns and no data on how many people are employed by small companies, or what they're paid.

The IRS collects employment information for the Social Security Administration, but since many companies report Social Security data separately for each of their factories, offices, or stores, no one has been able to make an adequate link between the employment information and the IRS's income data.

The Census Bureau conducts an economic census every five years that provides information by employee size category, but it excludes some sectors of the economy where small businesses are especially numerous, such as health care. It contains no profit and loss information. And the bureau, like the IRS, spends years processing the data before it becomes available.The final volumes of the 1977 census have just appeared.

The economic census, moreover, like IRS publications, provides no regional data. The only regional data comes from another Census Bureau publication, County Business Patterns, which contains only payroll information derived from the IRS and from forms mailed out to companies by the Census Bureau.

None of this published data allows first-rate analysis over time because none of it permits researchers to follow groups of specific firms from year to year. If IRS statistics show, for instance, that the share of the nation's output produced by firms with less than $5 million in sales is declining, no one can say accurately whether that's because a poor climate for small businesses has caused many to close up shop or because a good climate has enabled many formerly small firms to grow.

Recently Congress has demanded that the inadequacy of the data collection process be ended. It has asked that the president transmit by January 20 of each year a report that examines the role of small business industry by industry, and presents current and historical data on small business production, employment, investment, and other economic variables. The president is also required to examine the effects on small businesses of both government programs and trends in the whole economy. In addition, Congress has told the Small Business Administration to publish a further array of small business indices.

The Small Business Administration's Office of Advocacy is attempting to create a comprehensive small business data base -- a computer-readable directory of all the small businesses in the country -- from which information on the role of small business in the economy can be calculated. Confidentiality rules prohibit the SBA from working with the records collected by the IRS and the Bureau of the Census on individual firms, so it is starting with the records collected by Dun & Bradstreet, which compiles reports on virtually all firms that want credit.

D&B has information on 4.5 million establishments, often covering many years. Obviously this date isn't perfect, but IRS and Census data are imperfect, too. David Birch at the Massachusetts Institute of Technology is already doing creative research with D&B data for 1969 to 1976. He edited the data extensively to remove inaccuracies. The Small Business Administration is now "cleaning up" Dun & Bradstreet data for 1979 and 1980.

But the completed SBA data base won't be available for some time. And only after creative researchers have used it extensively for a number of years will the federal government be able to provide the kinds of information Congress has demanded.

Even though only a few million dollars are involved, the three-year-old effort at compiling the data base is likely to wither on the vine in a time of budget cutting unless it gets substantial support from the small business community.

If you care about your role in the economy, let the President and your representatives in Congress know that you think quality data on small business should be a high priority. Without it, no one will be able to substantiate your gut feeling that you are being unfairly squeezed out of the economy. No one will be able to measure what is happening to the productivity of small firms relative to large firms. And no one will be able to establish a case for regulatory flexibility or other measures that help small business compete.

Last updated: Dec 1, 1981




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