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Op-Ed

Nurturing the real job creators

We all love small business, but it's big business that drives economic growth.

July 10, 2012|By John H. Bunzel
  • Maria Riggs was able to open her Revolution Doughnuts shop in Georgia through Kickstarter, a crowd-funding website that lets small entrepreneurs get started on creative projects. American small businesses may still be struggling in a tight economy, but they are also basking in a rash of good publicity.
Maria Riggs was able to open her Revolution Doughnuts shop in Georgia through… (Phil Skinner / Atlanta Journal…)

In an American Express ad promoting Small Business Saturday, a man in a cowboy hat declares: "Small businesses are the lifeblood of our community." A woman sitting in a clothing store declares such enterprises "absolutely crucial, vital." Over a montage of shops, a young woman explains how local shops "make you happy to live where you live."

American small businesses may still be struggling in a tight economy, but they are also basking in a rash of good publicity.

Portrayed as modern-day underdogs, they are seen as symbols of independence, self-reliance and perseverance, virtues that hark back to the days when Thomas Jefferson celebrated "free men in pursuit of industry and improvement" who would shape the nation. And politicians of both parties are vying to prove that it is they rather than their opponents who are the true champions of today's small-business entrepreneurs.

At the core of the almost universal admiration of small business is an assumption: that ultimately it will be such enterprises that revive the economy and create needed jobs.

But is small business really the solution to the nation's economic woes? Probably not. In a recent Harris Poll of more than 1,400 small businesses, two-thirds said they would not increase hiring this year. And even when small businesses hire, they tend to hire small numbers of people.

However hostile Democrats like me may be to the excesses of Wall Street, and however much everybody admires the small, independent businesses in our neighborhoods and communities, big business remains the primary driver of economic growth and job creation.

Consider Europe's crisis. Greece, Portugal, Spain and Italy — the countries with the most profound economic problems — are among the countries with the largest percentage of workers employed by small businesses. Meanwhile, as the New Yorker's financial analyst, James Surowiecki, recently pointed out, the countries with the lowest percentage of workers employed by small business — Germany, Sweden, Denmark and the United States — are some of the strongest economies in the world.

The correlation is not a coincidence, according to Surowiecki. "It reflects a simple reality: small businesses are, on the whole, less productive than big businesses," he writes in the magazine. And people who run small companies aren't necessarily interested in owning big businesses. "Most are people who simply want to run a small company, do the work they enjoy, and have some control over their own financial lives.... Small may be beautiful. It's just not all that prosperous."

Moreover, there are some things small businesses just can't do. You may favor the homemade pastries at the bakery down the street, but it's unlikely you'll ever buy a car made by your local machinist, and if you could, the cost would be astronomical. Some things just require economies of scale. People also are more likely to buy their televisions from the nearest big-box merchant than from an independent store. Why? The cost. Large sellers can negotiate more competitive prices, and they can make up for smaller profit margins through greater volume.

Still, there is a reason small business has such a claim on the American imagination. To understand the roots of the small businessman's political ideas and concepts, one needs to begin with the struggle between Jefferson and Alexander Hamilton — or, more specifically, with the conflict between the agrarian spirit (the heritage of the pre-Industrial Age) and the cosmopolitan spirit.

This is not to say that small businessmen would prefer to live in a pre-industrial society. But their enterprises are a contemporary embodiment of many pre-industrial ideals still cherished by small business and trumpeted by politicians today.

There is no analytically rigorous or reliable data on which of the parties is most likely to be supported by small-business owners, and no accurate indication of whether they will vote for President Obama or Mitt Romney in November. But polling does suggest that small-business owners are far from satisfied with the status quo. Not surprisingly, their political beliefs tend to reflect highly individualistic values and a skepticism of big government. In a recent Harris Poll of small businesses, 84% of respondents said the economy was on the wrong track. "The voices of these Main Street businesses," declaredU.S. Chamber of Commerce President Thomas Donohue, "are telling us plain and simple, we need a change of course in Washington."

Strongly opposed to Obama's stimulus spending and intrusive regulation, small-business operators want to see taxes cut as a signal that Washington will encourage entrepreneurial activity. Through the National Federation of Independent Business, their effective lobbying organization, small business has strongly opposed Obama's healthcare law.

All small-business owners do not think or vote alike. But there is ample proof of their fidelity to limited government, free markets and traditional morality, which they regard as the virtues and inducements of an earlier way of life. They feel deeply that those who stand apart from them are willing to trade the ideal of individual freedom and initiative for the false bait of a security that no political power — and certainly not a massively expanding government — can ever provide.

John H. Bunzel, author of the 1962 book "The American Small Businessman," is a political scientist and research fellow at Stanford's Hoover Institution.

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