Monday, December 01, 2008

The Squeeze on Entrepreneurs

Over 80 percent of all businesses in this country are created by small business and over 90 percent of all jobs are created by such entrepreneurs, according to the Small Business Administration. It seems that this important engine of economic growth is under a constant state of siege by the government that continually taxes these companies without limits in order to subsidize those in poverty on the one end extreme and to bailout some of America's wealthiest businesses on the other. I cannot recall a time in this nation's recent history where small businesses have been under such pressure and yet have also been more important to the economy's future.

How important are small businesses? According to the SBA, entrepreneurs:
  • Represent 99.7 percent of all employer firms.

  • Employ about half of all private sector employees.
  • Pay nearly 45 percent of total U.S. private payroll.
  • Have generated 60 to 80 percent of net new jobs annually
    over the last decade.

  • Create more than half of non farm private gross domestic
    product (GDP).

  • Hire 40 percent of high tech workers (such as scientists,
    engineers, and computer workers).

  • Are 52 percent home-based and 2 percent franchises.

  • Made up 97.3 percent of all identified exporters and produced 28.9 percent of the known export value in FY 2006.

  • Produce 13 times more patents per employee than large
    patenting firms; these patents are twice as likely as large
    firm patents to be among the one percent most cited.

The logic behind bailing out failed auto companies and financial institutions is because these type of companies individually employ large numbers of people. If a Ford or a GM go under, tens of thousands (or even hundreds of thousands) will be instantly unemployed and the ripple effect will be more like a tidal wave. However, if the local movie rental place, the convenience store, and sandwich restaurant go under, that only translates into a dozen or so positions. However, thousands of these small businesses going down, on the other hand, paints a much different picture.

The lessons we are learning from government is that obsolescence and a lack of competitiveness are only a problem if your business is small. The larger a company is, the more resistant it can afford to be to necessary change, the less important it is too make tough decisions, and the more likely that company will receive a free pass for poor performance. What type of companies are we going to have if they are not allowed to fail? Companies that are destined to fail at a huge cost to taxpayers who keep them up for years. The biggest victims will be the huge entrepreneurial class who more than carries its own in job creation, but also has among the biggest tax burden.

The government control, subsidy, and even ownership of large businesses has historically been known as fascism. We don't like the term because we think of our enemies during World War II. Unfortunately, if the shoe fits, we are destined to wear it. What is most striking is that this desire to accommodate the most massive of businesses at the expense of small ones seems to transcends party lines. Both McCain and Obama joined George Bush in propping up many big businesses begging to fail. I wonder, at what point, will these small businesses that have a big impact will simply declare "enough!"

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

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