The Politics of Small Business

At this week’s Republican National Convention, there was considerable focus on the importance of “small business” as a job-generator.

While there is suspicion among the national news media and general public about “big business,” particularly multinational corporations, often described as greedy and predatory, “small business” is considered a good thing by both national parties.

Small business is seen as the prime engine of entrepreneurial capitalism, and a job generator. At a time when the country’s economy appears stalled, small business is characterized by Republicans particularly as the solution to the American economic malaise.

Republicans say small business needs to be “unleashed” – i.e., freed from heavy tax burdens and excessive governmental regulation.

What exactly is small business? One description is found in Wikipedia: 

In the US, small business (less than 500 employees) accounts for more than half the nonfarm, private GDP and around half the private sector employment. Regarding small business, the top job provider is those with fewer than 10 employees, and those with 10 or more but fewer than 20 employees comes in as the second, and those with 20 or more but fewer than 100 employees comes in as the third (interpolation of data from the following references). The most recent data shows firms with less than 20 employees account for slightly more than 18% of the employment.
 According to “The Family Business Review,” “There are approximately 17 million sole-proprietorships in the US. It can be argued that a sole-proprietorship (an unincorporated business owned by a single person) is a type of family business” and “there are 22 million small businesses (less than 500 employees) in the US and approximately 14,000 big businesses.” Also, it has been found that small businesses created the most new jobs in communities, “In 1979, David Birch published the first empirical evidence that small firms (fewer than 100 employees) created the most new jobs” and Edmiston claimed that “perhaps the greatest generator of interest in entrepreneurship and small business is the widely held belief that small businesses in the United States create most new jobs. The evidence suggests that small businesses indeed create a substantial majority of net new jobs in an average year.” Local businesses provide competition to each other and also challenge corporate giants.
 Of the 5,369,068 employer firms in 1995, 78.8 percent had fewer than 10 employees, and 99.7 percent had fewer than 500 employees. 

Late last year, the National Small Business Association (NSBA) polled more than 650 small businesses (members and nonmembers) on a wide range of political matters, and the survey produced some interesting findings.

Most respondents were unhappy with how Congress and the Administration were handling the economic malaise, and most felt that neither the executive nor legislative branch understands small business.

Small business owners are very active politically, and expect to be heard in the November elections:

A key take-away from this survey is the fact that small-business owners are very active in politics with 97 percent saying they vote in national contests and 94 percent voting in state contests. Comparatively, voter turnout among the U.S. voting-age population for the 2008 presidential race was 57 percent. Additionally, 69 percent report they have contributed to a candidate’s campaign and 76 percent have contacted their lawmakers on small business issues.
 While the survey does show significant differences of opinion between Republican and Democratic respondents, there is broad agreement that politics have become more partisan in the last 10 years. Small-business owners expressed significant discontent with their elected officials and the overall U.S. political machine. Fifty-eight percent of small businesses think they are not well represented by nationally elected officials and 62 percent believe the U.S. political system does not serve their business well.

The NSBA concludes:

Despite the many challenges thrown their way in the last five years, the Great Recession and a sluggish economic recovery, small businesses are still here. In fact, there are 70 million small-business owners or employees in the U.S.—that’s one in three of the U.S. voting population. While the outcome of this survey shows a relatively strained relationship between lawmakers and small business, it is not too late. Lawmakers have a long, and growing, to-do list which includes many measures that could positively impact small business beyond a stump-speech here and there.

In the Middle Ages, small business owners were called the “bourgeoisie.” By the time of the Industrial Revolution, the term “bourgeois” was being applied by leftist theorists to those capitalists who owned the means of production – more like what we would today call big business. But the merchant class, the small business sector, remains. If today small business owns a significant chunk of the national economy, it has rarely acted like a cohesive force, driven by a single objective.

It will be interesting to see if that changes this year.