Here we go again. Every few years, some interests on the left or right become frustrated that most Americans care deeply about the small-business community--and that concern gets in the way of those interests' policy objectives. So they try to undercut the importance of our small-business economy.
The latest attempt came on Saturday, when an article ran in The Wall Street Journal to promote a new book, Big Is Beautiful: Debunking the Myth of Small Business, by Robert D. Atkinson and Michael Lind. I'd like to respond to it.
In the article, the authors make many claims that we dispute, specifically the assertions that small businesses are less productive, less innovative, and create a smaller share of net new jobs.
According to the Bureau of Labor Statistics, since the end of the Great Recession, small businesses have created 62 percent of all net new private-sector jobs. Among those jobs, 66 percent were created by existing businesses, while 34 percent were generated through new establishments (adjusted for establishment closings and job losses).
While establishment births dropped in 2008-2010, it was almost completely recovered by 2013. What hasn't recovered is job creation--partly because new establishments are remaining small.
Yet, numbers don't tell the whole story.
Could the wildly increasing costs of health care be one reason smaller businesses are less willing to bring on new employees? Yes, a significant one. Could the fact that lending to small businesses still has not fully recovered be a driver for slow job growth? Absolutely--NSBA data from as far back as 1993 shows a direct correlation between availability of capital and hiring.
The authors make the case that company age is critical, and that's true, young companies do tend to grow more quickly than older ones. But let's not forget--a two-year-old company with 10 employees experiencing significant growth is still a small company.
While the authors cite the countless bills targeted to small businesses as evidence that lawmakers coddle them, let's remind ourselves how they voted to spend their money.
The 2017 appropriation for the (mostly big-business focused) Commerce Department was $9.2 billion. The Small Business Administration (SBA), on the other hand, was given just 8.6 percent of that, at $0.8 billion. The FY 2019 request is an even greater disparity: Commerce's request increased to $9.9 billion while SBA received the third largest cut of all agencies, at $0.6 billion--now just 6 percent of Commerce's proposed budget.
The authors also simplify the fact that small companies are exempted from some workplace regulations. Small employers often hire family members, neighbors, and friends, and requiring these employers to then jump through the same hoops as a multinational corporation whose CEO resides 1,000 miles away from the majority of her workers is counterintuitive and wildly inefficient.
I must to admit to actually being impressed by the author's straight-faced ability to state that "the tax code also lavishes benefits on small firms." Really?
You show me a small-business owner, and I'll show you someone who spends far too much time and money trying to understand and comply with the federal tax code. Not only are the majority of small businesses (83 percent of which are pass-through entities) subject to higher tax rates than their larger C-Corporation counterparts, under the Tax Cuts and Jobs Act, any modest benefit they reap is scheduled to go away after 2025, while corporations will retain their steep tax cuts.
There are many more erroneous and misguided statements--from financing to innovation to government contracting set-asides--in the piece, too many to address each one. So I'd like to imagine the world as proposed by the authors. No special treatment for small businesses, no programs to help bolster their ability to start and grow, no requirements that bankers treat them fairly, no safe-harbors or exemptions from regulations designed to protect workers, and certainly, absolutely no touting the benefits of small-business ownership.
Would you start a small business?
Would you risk leaving your very comfortable, high-paying, well-benefited job at one of the 10 conglomerates now operating in the U.S.? Would you have the financial backing, the legal and labor expertise, the tax and accounting prowess, and be the picture of perfect health required to start your own business? Not likely.
So what do we do? Are the authors suggesting that businesses can somehow, miraculously, skip the challenging youth and adolescent stages and just jump right into being a larger business? Using the authors' analogy--despite its condescending overtones--of kids and adolescents growing more quickly than adults, if we took away the extra gallons of milk and after-school snacks, if we stopped providing education, if we penalized a kid for an inadvertent mistake, if we took away all the extra tools and resources required to usher kids through childhood, what would that look like?
A lot fewer working, productive adults.
Imagine your town--large or small--without small businesses. Imagine your communities with fewer places to work--after all, there aren't a whole lot of large companies willing to relocate to a town of just 5,000 people--with fewer employed people. And the workplaces that do exist are managed out of headquarters hundreds or thousands of miles away. It's not a pretty picture, and regardless what the authors' think of small businesses, they are crucial to thousands of smaller towns across America, and critical to our overall entrepreneurial vibrancy that has created the greatest economy in history.