* Page through a copy of PC World or any of the other computer magazines, and scope out an industry that didn't exist 20 years ago. It has its share of giants: Intel, Microsoft, IBM, and so on. It also has a startling abundance of small and scrappy suppliers. Does anyone really think the personal-computer business in all its facets will "consolidate," as economists say, anytime soon?
Why should the long-term drift toward ever-bigger companies have reversed itself? Economists aren't sure, but they often point to three key factors, none of which seems likely to disappear. One is stiffer competition. In a fast-changing global marketplace, even the largest companies can no longer dominate their industries. They must cut costs (often by outsourcing) and focus their resources (often by selling off extraneous operations). That's why their payrolls have been shrinking.
A second factor: technology. The rapidly dropping price of computing power has created not only whole new industries but whole new methods of producing goods and delivering services. Unlike technological revolutions of the past, this one is accessible to companies of all sizes.
Then there's a third factor, a kind of entrepreneurial snowball effect, at work. Say a few enterprising souls take advantage of new technology or new market niches and start up some companies. Some are wildly successful. Now big established companies find themselves faced with even more competition. The giants have to cut costs, so they slash their payrolls, throwing seasoned, savvy businesspeople out of work. A few of the newly unemployed start companies of their own. Every new company needs office supplies and furniture, computers and programming services, advertising and marketing, accounting and payroll, janitorial and temporary help, and so on -- and it wants to get these services from independent suppliers. A 1,000-employee corporation has its own cafeteria and legal department. Ten 100-employee companies support a lot of lunchrooms and law offices. Result: an entrepreneurial explosion.
So one astonishing thing about this economic transformation is simply that it occurred. No one expected it. A second astonishing thing is how little, as yet, we know about it.
Back in the corporate era, it was pretty easy for anyone to get a handle on what was happening in the marketplace. What counted, in economic terms, was a relative handful of companies. Nearly all were publicly traded and therefore easy to track. And now? Those big corporations still "count" -- but so do tens of thousands of growth companies (at all stages of development) and millions of smaller enterprises, most of them privately held.
Who knows what all those businesses are up to? Who knows what their revenues are, how many people they employ, or even exactly what they sell? The Internal Revenue Service knows their financials -- maybe -- but the IRS doesn't release much of its data. Dun & Bradstreet and other credit bureaus collect some information, but a D&B data set is only a first approximation of a complete and accurate census. The Census Bureau gathers business data every five years. But the bureau doesn't release its statistics for another three or four years, half a lifetime in today's fast-changing economy. Then, too, as David Friedman argues elsewhere in this issue, many of the new companies are invisible -- and can be hard to classify even if they do turn up on a statistician's radar screen. (See "Job Detection," [Article link].)
Without definitive data, claims about small business and the economy often degenerate into disputes about details and squabbles over statistics. The truth gets mired in a welter of myths and confusion. What is a small business, anyway? If a company starts small and quickly grows big, do we count it in the statistics as small or large? How many small companies really do grow (and, yes, how many jobs do they really create)? Attempting to answer those questions raises a host of policy issues. Should government help small companies? Why? How?
Today all of us -- businesspeople, policy makers, researchers, journalists -- are explorers in this new and poorly charted territory. The pages that follow lay out the basic data -- the state of small business and its role in the economy -- as best we understand it. But we don't have all the information we need. Nor can we see over the horizon. As Zoltan Acs, visiting professor of business and public policy at the University of Maryland in College Park, points out, we can't yet know whether the upheavals of the past 20 years are just a momentary blip in the long-term trend toward bigness. Andrew Tobias may turn out to be right after all -- but a little later than he imagined.
But if the upheavals are not a blip, if the future is a continuation of what we're seeing right now, then we're in a truly new economy -- a world in which small business, far from being a backwater, is a roiling, swollen, turbulent tributary to the main stream. In that world, the state of small business is an issue that no one who cares about America's economic future can ignore.
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The (Small) Business Landscape
If businesses were buildings, you could walk around the economic landscape and count them. You could see how big they were and what condition they were in. You could note how many new ones were under construction and how many were waiting for the wrecker's ball.
If you could do the same for businesses -- if you could gather regular, accurate, up-to-the-minute data on all those variables -- you could compile a rock-solid assessment of how your industry or region or country was faring economically. You could see where the jobs were coming from and where the hot new markets were developing. You could measure which policies helped, and which hindered, business creation and growth.
