Does small business "drive the economy"?

Bikewer

Penultimate Amazing
Bikewer
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A mantra chanted by both Republicans and Democrats, though they are deeply divided about how to promote small business.

But the statement itself...Just what percentage of the economy is indeed "driven" by small business? Most small businesses are....Small, with only a few employees, few benefits, relatively low wages...
Still, in two income families; the secondary wage earner can furnish a substantial supplement to total income.
In our case, my wife was a florist. She's been unemployed since January, and no one in that field is hiring locally.
But that's just an anecdotal case; how about nationally?
 
Bikewer said:
But the statement itself...Just what percentage of the economy is indeed "driven" by small business?
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Huge.

According to the Department of Labor, "the nation’s 17 million small, non-farm businesses constituted 99.7 per cent of all employers, employed 52 percent of private workforce and accounted for 51 percent of the nation’s sales."

Of course, what you think of as "small business" may not be what the government thinks of as "small." The definition of "small" is rather complex (and depends upon the industry) but typically any business with less than $5 million in annual revenues and employing less than 500 people would be "small."


Most small businesses are....Small, with only a few employees, few benefits, relatively low wages...
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That's right. That probably describes 90%+ of small businesses. But those small businesses are in many cases what makes it possible for the larger businesses to stay around, since they provide critical services, especially the sort that can't be provided at scale. Sure, it may be possible to pump oil, grow corn, or pour steel by the trainload. But toilets need to be unclogged one at a time. And you're going to have a hard time pouring much steel if your toilets don't work.
 
The highest-paid job I ever had was as a role-player in training scenarios, working for a local contractor, with about 80 employees, total.

Worst was flipping burgers for Jack in the Box, corporate-run shop.
 
I once heard that the F-xx fighter airplane had 250,000 subcontractors. Some were one man with one machine in his garage, making a particular fastener. The shop I worked at, 5-6 employees, was making a "throttle positioner", a serrated washer. Blueprints were 40 years old. We made a few dozen.

If you don't think small business have an impact on the economy, who do you think pays the rent in all those gazillions of concrete tilt up industrial complexes? ( I did for 20 years) Hey, when you are a little kid, you wan to be a fireman or policeman, or follow Dad in to whatever job he does. But those little industrial units are where America actually works. Just take a walk through one, peeking in the back doors. Spice re-packers, Banjo makers, Karate shop supplies, companion dog trainers, rent-a-office-plant, auto parts retrofitters, insulated window installers, computer geeks, print shops, electronic gate installer..... The world can live without Sears, not so the little tenants.
 
drkitten said:
That's right. That probably describes 90%+ of small businesses. But those small businesses are in many cases what makes it possible for the larger businesses to stay around, since they provide critical services, especially the sort that can't be provided at scale. Sure, it may be possible to pump oil, grow corn, or pour steel by the trainload. But toilets need to be unclogged one at a time. And you're going to have a hard time pouring much steel if your toilets don't work.
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True, though the relationship is two-way -- obviously, they need each other. Unfortunately, when the car companies hit the skids, it was a lot of those small supporting businesses that got killed. It's not uncommon for a small business to subsist one or two large contracts (e.g. supply specialized widgets for GM or Chrysler), and if they go away, so too does the business (unless they can find someone else who needs the service).

I believe this was some of the rationale around the auto bailout (agree with it or not).
 
I've been self employed for 20 years and most of my competitors are 5-7 employees or less. This represents the vast majority of the people I deal with in all trades on a job site.

While small businesses do the vast majority of the work, they are the ones that get trampled first by unions and by large corp equaly.
 
As far as I know, most or all of the talk about "small business" is pure spin. Small business is--after all--supposed to be you and me or Mister Jones down the street.

Nobody in small business pollutes the environment, or cooks their accounts, or exploits poor country citizens, or sells dodgy gear, or needs a bailout, or offshores to the Indians, or does anything bad just to benefit shareholders, or lobbies the government to rip off the public.

In short it is 100% composed of the totally decent and non-threatening Honest Janes and Salt-Of-The-Earth Sidneys that we all know. What's not to like? Of course they drive the economy.

(ETA--I should add that I am in a small business)
 
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Sort of on the same tack... I have wondered what segment of the economy is now entirely "off the books"? I live in a lower-middle-class area South of St. Louis. Just looking around, it seems that a rather large percentage of my neighbors are in the self-employed "handyman" trade. They have a truck, a ladder, some tools....
I just talked to a fellow I was waiting in line with at a fast-food restaurant. He had just joined his brother in such a scheme and said he had more work than they could handle. I repair/refurbish bicycles, and was surprised to learn that I had toted up over 1000.00 last season. I could likely do more.

My dad (some years back...) did the same when he retired, and found he had more work to do than when he was working. In a poor economy, things need fixed, and strapped folks can't often afford to pay licensed, bonded, union outfits.
Hehe- I suppose you could look at the drug trade in this regard; one wag said that selling drugs was the very last segment of true free-market capitalism...

Still, with so much of this sort of thing being done off the books or out the back door, I wonder how much of the economy is involved?
 
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ARubberChickenWithAPulley said:
True, though the relationship is two-way -- obviously, they need each other.
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"Obviously." But the OP wasn't asking how critical big business is to the economy.

Unfortunately, when the car companies hit the skids, it was a lot of those small supporting businesses that got killed. It's not uncommon for a small business to subsist one or two large contracts (e.g. supply specialized widgets for GM or Chrysler), and if they go away, so too does the business (unless they can find someone else who needs the service).

I believe this was some of the rationale around the auto bailout (agree with it or not).
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Yup. If nothing else, large companies usually have deeper pockets and access to more/better credit, so they can ride out a longer downturn. And they've got more leverage, because they can squeeze the small businesses. "I'm sorry, Mr. Harrison, but we can't pay you $6 a widget any more; you'll need either to give them to us at $5.50 or we'll need to go somewhere other than the Harrison Foundry." (Wal*Mart is notorious for this even in good times; it actively looks for small businesses because it knows they're more leanable-on.)
 
Bikewer said:
I have wondered what segment of the economy is now entirely "off the books"?
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Directly, none of it, since dealing with any business in the informal sector is by definition not counted officialllyas part of the economy. Indirectly, (money earned by cheating the law being spent in the formal economy), it varies and has to be estimated.

There are a number of studies that estimate the percentage of employment that is off the books in various countries on the ILO web site.

A separate World Bank research paper here comes up with informal sectors that are between 10% and 20% of GDP for developed nations, and higher for poorer countries.
 
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Francesca R said:
Nobody in small business pollutes the environment, or cooks their accounts, or exploits poor country citizens, or sells dodgy gear, or needs a bailout, or offshores to the Indians, or does anything bad just to benefit shareholders, or lobbies the government to rip off the public.
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Well, sort of. There's certainly less exploitation of citizens in poor countries per capita from small business, simply because there's less opportunity to do so. Explain to me how DrKitten's Delicatessen, which delivers sandwiches all over Springfield, is going to be exploiting the East Ruritanian peasants?

Similarly, while I guess I can lobby the government, I can't do so nearly as effectively as the professional lobbyists who represent the multinationals. While I might need a bailout, I'm highly unlikely to get one. And I certainly can't effectively threaten PWC that I will take my tax preparation business elsewhere if they don't "lighten up" on the audit and structure something a little bit dubiously.

Of course, this doesn't make this me morally pure, just a very very ineffective villain. ("Hey, I'm Moist. At my most badass, I make people want to take a shower.")
 
drkitten said:
Explain to me how DrKitten's Delicatessen, which delivers sandwiches all over Springfield, is going to be exploiting the East Ruritanian peasants?
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Various ways such as (i) buying plastic sandwich wrap develped by Pfizer or Dow Chemical and sold by Wal*Mart, (ii) . . . through to . . . (n) not saying "You smell" at police outside WTO meetings whenever you get the chance.

Didn't you know? Ignorance is no excuse. You might want to step up security at your premises before the next culture-jam protest rally.
 
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Francesca R said:
Various ways such as (i) buying plastic sandwich wrap develped by Pfizer or Dow Chemical and sold by Wal*Mart, (ii) . . . through to . . . (n) not saying "You smell" at police outside WTO meetings whenever you get the chance.

Didn't you know? Ignorance is no excuse. You might want to step up security at your premises before the next culture-jam protest rally.
Edited by Tricky: 
Edited to replace original of quoted post with edited version of quoted post.
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You lost me. Are you advocating violence against trade organizations, police, and small businesses, or just affirming the ones who do?
This post is in reply to a previous version of the post that Francesca R edited, so the response may not be relevant in it's present version.
Posted By: Tricky
 
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drkitten said:
According to the Department of Labor, "the nation’s 17 million small, non-farm businesses constituted 99.7 per cent of all employers, employed 52 percent of private workforce and accounted for 51 percent of the nation’s sales."
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Small business in general doesn't outsource to other countries. Small business often sells to large business. The article doesn't discuss the percentage of the dollars earned by small vs large business. I suspect that the 52% of the work force and 51% of sales brings in far less than 50% of the revenue.
 
fishbob said:
Small business in general doesn't outsource to other countries. Small business often sells to large business. The article doesn't discuss the percentage of the dollars earned by small vs large business. I suspect that the 52% of the work force and 51% of sales brings in far less than 50% of the revenue.
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"Sales" are almost always denominated in dollars, not in units. Pick up a prospectus for your local supermarket chain or something. They won't say "we sold a hundred thirty million items"; they will say instead "we had $73 million in sales."

So my bet is that 51% in sales represents exactly 51% of the gross revenue.

You're right, of course, that salaries at small businesses tend to be smaller than at large ones, so 52% of the workforce probably represents less (maybe much less) than 50% of the payroll, but I don't have any stats to back that up.
 
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