Small Business: Divide and Conquer


In this election year the country has seen the political parties jockeying for votes of small business, but whether either party represents the needs of small business is questionable. Ide (2009) showed that small businesses account for 99.7% of businesses in the United States and 50.7% of employees in 2004.

Although small business should have significant  political power, the parties are lukewarm about  supporting important interests of small business. Each party encourages some of the interests of small business, but neither party makes a strong case for small business.  As Young (2008) suggested, policymakers since the New Deal have taken the strategy to fragment small business interests.

Each party has a script it follows to divide and conquer small business, but what if small business unites? Small business by the sheer numbers should have a more powerful influence on policymakers than big business.

Baumol, Litan, and Schramm (2007) listed several political issues benefiting small businesses. Bankruptcy protects tops the list because the cost of failing is too high. Big business benefits by Chapter 11 reorganizations. Although Chapter 11 is affordable for big business, this provision of the bankruptcy law is costly for entrepreneurs. The stigma attached to bankruptcy penalizes small business, but rewards big business. The notion big businesses can clean up their act, but entrepreneurs have little value to the economy is a bad idea. Why can big businesses make mistakes, but not entrepreneurs?

The next item on the list is access to finance. Joseph Schumpeter (1911) explained the importance of banks in making financing available to small business to spur innovation and drive economic growth. The role of financial markets is to channel savings to investors wanting to earn higher returns. Banks today are not lending and policy makers have done little to help small business find the funds they need. Lending to innovators drives economic growth and job creation. Large companies have access to capital through the capital markets. Why not lend to small business?

Baumol et al. (2007) argued small businesses need rewards for engaging in productive entrepreneurship that innovates and finds ways to make and deliver products better than those existing. For example, small businesses should find it easier to protect intellectual property and pay lower taxes. Small business should have an equal ability to enforce contracts as big businesses enjoy. Unfortunately, existing law favors big business and the cost of protection is too heavy for small business.

Another item on the list is antimonopoly regulation. The policymakers in recent years have ignored antitrust laws and made it easy for big business to crowd out small business. Savino (2009) explained how Supreme Court Chief Justice Louis Brandeis championed efficiency in business by enforcing antitrust legislation in the late 1920s and 1930s. Capitalism relies on equal opportunity for small business to compete.

A final item on the list is to support innovations resulting from inventions coming out of university research and development efforts. Making patent protection easier would benefit these efforts and federal funding can help, but policymakers are overzealous about austerity measures (Baumol et al., 2007).

Unlike others willing to accept current conditions for small business, I believe the time has come for small businesses to come together and foster a small business agenda. I want to see the United States return to the prominence it once achieved as the hub of small business creation.

Please leave a comment on what you think is important for small business. I am interested in knowing your thoughts. What should be part of small businesses political agenda?

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References

Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism and economics of growth and prosperity. New Haven, Conn. and London: Yale University Press.

Ide, T. (2009). How to rectify unfair trade practices and to establish appropriate supply chains and better business culture under the global market economy. Pacific Economic Review, 14(5), 612-621. doi: 10.1111/j.1468-0106.2009.00475.x

Savino, D. (2009). Louis D. Brandeis and his role promoting scientific management as a progressive movement. Journal of Management History, 15(1), 38-49. doi: 10.1108/17511340910921772

Schumpeter, J. A. (1911). Theory of economic development. Cambridge, MA: Harvard University Press.

Young, M. (2008). The political roots of small business identity. Polity, 40(4), 436. doi: 10.1057/pol.2008.20

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  1. #1 by Safiya Adamu on April 27, 2012 - 3:47 pm

    Small business in the US are probably organised but not mobilised for political participation and this obviously is their undoing. They should come together and create a powerful niche in both the political and social environment. This applies to them world over, it is a necessity if they want to survive and do away with the attitude of big business.

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