Small Businesses: Do They Push US Innovation, Job Creation, and Economic Growth?
It is an assumption accepted almost universally in public discourse: small businesses are the wellsprings of innovation, job creation, and economic growth. They are the basis of American prosperity, even though big business exerts disproportionate power and control by orchestrating a system of “crony capitalism” in Washington.
Every modern president, regardless of political party, has sung the praises of small business on these grounds—but a careful analysis shows every modern president has been wrong.
In a new book, Big Is Beautiful: Debunking the Myth of Small Business (published this April by the MIT Press), Robert D. Atkinson and Michael Lind overthrow many of the myths that have attached themselves to small businesses over the years. Small businesses are not the font of jobs, Atkinson and Lind argue, because most small businesses fail, thereby destroying nearly as much employment as they create. Virtually all big firms are more innovative and productive than small ones—which is why they got big in the first place. It’s also why they pay their workers better wages and provide better benefits. In fact, the only kind of small firm that contributes to technological innovation and the job creation and economic growth that comes with it is the technology-driven start-up—and its success depends on scaling up.
Big firms likewise have superior track records on virtually all progressive priorities as diversity, unionization, and environmental protection. Yet governments, motivated by a confused mix of populist and free market ideologies, continue to go out of their way to favor small business. Public policy showers lower tax rates and looser regulatory requirements for firms under a certain number of employees. Big businesses, by turn, suffer not only in the public eye, by being cast as the dark agents of American capitalism, but in the policy arena as well.
Pointing to the advantages of scale for job creation, productivity, innovation, and virtually all other economic benefits, Atkinson and Lind argue for a “size neutral” policy approach to business taxation, financing and subsidies, procurement, and regulation. They conclude that the focus should be on new, high-growth businesses—that is, dynamic startups, not small businesses whose owners don’t engage in innovation or strive for growth.