Sixteen thumbnail sketchs of the country's leading small-business economists, complete with e-mail addresses.
Over the past 15 years, taking the measure of small business's role in the economy has blossomed into an industry all its own. here are its key players, leaders, and pacesetters
Trailblazers never have it easy. These researchers are no exception. To appreciate their pioneering spirit, just recall how unforgiving the climate was for small business during most of the 20th century. In the early decades titanic corporations were worshipped as the sole creators of jobs, the builders of wealth, the purveyors of the American dream. And for the most part, they were.
"I was brought up by a family that weathered the depression, and I was taught from an early age that big corporations were the place to become employed," explains Bruce Kirchhoff, a professor of entrepreneurship at New Jersey Institute of Technology. "Through the mid-1960s the icebreaker at any party was 'Whom do you work for?' It wasn't 'What do you do for a living?' " Heaven forbid you worked at a small company, or worse still, launched your own.
To complicate matters, the most memorable flickers of entrepreneurial research were snuffed out. Take Austrian American economist Joseph Schumpeter's Capitalism, Socialism, and Democracy (1942; Harper and Row, 1975 reprint). Schumpeter suggested that competition was fueled by technological change, not the head-to-head bouts between industry players. Schumpeter's theory of "creative destruction" implies that start-ups have to displace seasoned businesses to advance an industry. It sounds logical now, but back in the 1940s, Schumpeter was pooh-poohed by the mainstream because his profound message was drowned out by grim Marxian overtones. Basically, he argued that if we don't wake up and realize that new enterprises catalyze economic growth, we're bound for socialism in a handbasket. Joe McCarthy blew the whistle, and some Schumpeterians were blacklisted.
Strike one.
OK. If people weren't ready to swallow the notion that bantam companies contribute to gross domestic product, perhaps they'd warm to the idea that the entrepreneurs -- ordinary folks like themselves -- generate the wealth.
So thought David McClelland, who tried to solve the economic-development puzzle by identifying the common quirks and motivations of company builders in The Achieving Society (Van Nostrand, 1961). Unfortunately, his conclusion -- that culture determines the ability to create new businesses -- silenced students of economic development in underprivileged areas. Soon thereafter, research projects involving the inner city and third-world countries came to a screeching halt.
Strike two.
* * *
Timing Is (Almost) Everything
If by the late 1970s you still believed that corporations manufactured all the new jobs, then the oil crisis had to jolt you into thinking otherwise. "Before then," notes Zoltan Acs, a visiting professor of business and public policy at the University of Maryland, "everything was big, big, big. After, there was great uncertainty."
With good reason: times were uncommonly tough. "The dollar was under attack. Oil was $100 a barrel, and inflation was sky-high. Steel mills and auto plants were closing," recalls Acs. Everyone wanted easy answers to baffling questions: Where have all the quality jobs gone? Where should I peddle my products? People craved something -- anything -- that would explain away the recession and get the country back on its feet.
That's when David Birch, armed with yellow legal pads of computations proving that young companies do leave their mark on the economy, came to the rescue. But his analysis suggested that they don't leave dents. They form bulges. The news was music to everyone's ears.
Looking back, Birch couldn't have struck out. He parked the ball because his signature finding -- that small business creates most of the jobs -- still holds true, and he vigorously marketed the concept every chance he got. Birch sent copies, the story goes, of his original report, "The Job Generation Process," to every power broker in Washington. Scribbled on the cover page were the words "Just thought you'd be interested."
* * *
Washington Gets Wired
In 1980 Congress passed the Small Business Economic Policy Act. It called for an annual report on the state of small business and for the creation of a national small-business database that would chart employment and income changes and the commercial doings of exporters and woman- and minority-owned businesses. To legislators, the requests seemed simple enough. But to the economists at the Small Business Administration, they were knotty. "We had this laundry list of items we were supposed to report on," recalls Bruce Phillips, then a staffer under SBA's chief economist, Bruce Kirchhoff. "But we had almost no data to begin to comply with the mandate."
Desperate for figures, the two Bruces wrote to state employment agencies for unemployment data. Some states agreed to send the data; others cited confidentiality restrictions. "Since we couldn't build a nationally representative database by company size with numbers from 20 states, we turned to Dun & Bradstreet," explains Phillips.
The D&B data, however spotty, were run until November 1991, when the SBA's Office of Advocacy penned agreements with the Census Bureau to exploit its data banks. But the SBA found its initial research outlay of $4.5 million reduced by 10% annually during the Reagan-Bush era. Today, its budget rests at a paltry $1.5 million, which has forced it to use resources more creatively.
* * *
Divide and Conquer
Meanwhile, the nuances of Ronald Reagan's economic-development platform fell on listening ears. Let's return to individualism, he cried. Let's not look to Washington for the yellow-brick road to prosperity. Instead, let's prune government-sponsored programs and sweep responsibility back onto the states.
So researchers began putting mom-and-pops under their microscopes to unravel the mysteries of business volatility. Endowed chairs in entrepreneurship opened at universities far and wide, and the academics who occupied those thrones developed innovative ways to measure the entrepreneurial fray. Marquette University's Paul Reynolds scrounged for money to hire researchers to write questionnaires, interview chief executives, and literally count companies. Technowizards like the University of Michigan's John Jackson created databases that held at least five years' worth of data.
