The Wonderland Economy

U.S. Small Business as a World Economic Power

Total Output of U.S. Small Business Compared with the World's Largest Economies, 1988, in trillions of dollars

Source: A Small Business Primer, by William J. Dennis Jr., National Federation of Independent Business Foundation, Washington D.C., 1993.

HOW JOB GENERATION IS MEASURED

How easy it would be if you could count small companies' contribution to job generation with the economic equivalent of a couple of snapshots. Take a picture of small-business employment in 1992, say. Take another picture in 1994 and compare the two.

Alas, the world doesn't work that way, simply because companies don't stay put in the same size categories.

Take a simplified example. Suppose in 1992 you have two companies with 10 employees and two with 1,000 employees. Between 1992 and 1994, one of the small businesses adds 500 employees. That gives it a total of 510 and puts it over into the "large" category.

If the others all stay the same, the snapshot in 1994 will show that big business has gained a

lot of jobs -- 510, to be exact. Small business, meanwhile, will have lost 10 (half its jobs!) -- even though it was a small company that created all those new jobs.

To get around that problem, researchers have learned to conduct what they call longitudinal studies. They identify a universe of companies in 1992, or whenever, and then follow each and every company over time. The jobs added or lost by companies that were small in 1992 are counted as jobs added or lost by "small business." Small business's share of new jobs is simply that number divided by the total number of new jobs.

In practice, of course, the calculations are never simple. Company records in any database may be incomplete or missing. Available databases (like Dun & Bradstreet's) may not capture important subsectors of the economy. It's often hard for researchers to keep track of ownership -- so that a company-owned Budweiser distributorship, for example, is counted as part of a big company, while an independently owned distributor is counted as a small business.

Job Generation Among Small and Large Companies, from 1981 to 1990
Share of total number ot jobs created

Source: Entrepreneurship and Dynamic Capitalism, by Bruce A. Kirchhoff, Praeger, Westport, Conn.,1994.

SMALL COMPANIES AS EXPORTERS

The new economy is a global marketplace. How many small companies are players?

The short answer: no one knows -- but the number is probably growing. In 1993 the Commerce Department released a study of U.S. exporters that provided the first solid data on the size of companies engaged in exporting. Some 96% of manufacturers that sold goods abroad, said the study, were small or midsize. (Three-quarters of that group had fewer than 100 employees.) Nearly all the wholesalers and other intermediaries engaged in exporting were small as well. However, large com-

panies still accounted for the vast bulk of export shipments. The 100 leading exporters alone -- companies like Caterpillar and General Electric -- accounted for half of the total.

Despite this study, it's hard to know the facts. Look at those "intermediaries," for instance. Manufacturers of all sizes often deal through intermediaries, and the statistics have no way of identifying the original suppliers of the goods being exported. Service exports, moreover, are notoriously hard to track. Then, too, the Commerce Department study was based on the 1987 Economic Census, and data from the 1992 tabulation won't be available until 1996 at the earliest. So how many small companies are actually selling to export markets right now is anybody's guess.

What makes us think the number is growing is a survey of small companies conducted every year for the past three years by Arthur Andersen & Co. and National Small Business United. In 1992 only 11% of the respondents said that they exported goods or services. In 1993 that number was up to 16%; in 1994, 20%. The most common markets? Canada, Western Europe, Mexico, and Asia/Pacific, in that order.

U.S. Exporters by number of employees

Total Exporters: 105,000

Source: A Profile of United States Exporters, International Trade Administration, Washington, D.C