Friday, September 30, 2011

For job creation, size still matters

Looking at a sample of [U.S.] companies created from 2004 to 2008 ... only 3 percent added more than 10 employees during that time. An even smaller proportion had applied or were in the process of applying for patents. (So much for being seedbeds of innovation.) Many small businesses simply go bust after a few years.

Indeed, according to data compiled by the U.S. Census/SBA, the "churn" of small businesses in most years is more than 85 percent.

Moreover, jobs at larger companies offer more stable employment, and better wages & benefits. This is true in the rest of the world, too.

According to one study, the higher a country's national wealth, the fewer small enterprises it has. Why? Because larger companies are more productive (perhaps because they attract better managers) and add more value.

Perhaps one take-away from this, as BB suggests, is if quality job creation is the goal, then U.S. policy should seek to woo more large businesses away from other countries, instead of giving yet more tax giveaways and loan guarantees to U.S. small businesses. It also causes us to re-consider (I can't believe I'm saying this) the efficacy of so-called "corporate welfare."

Political candidates' promises to provide even more government help for small business may be smart populist politics, since about 90 percent of U.S. firms employe fewer than 20 people, but it is not necessarily good policy.

Concludes the article's author Charles Kenny:

In the developing world, support for small businesses through tools such as microfinance is part of a safety net to help those who lack better employment opportunities. But in the U.S. and Europe it is far more often a subsidy to people making a lifestyle choice that reduces national productivity, which doesn't help the economy or promote job creation. Extolling small business might be a good way for politicians to win elections. But when it comes to creating jobs, size still matters.

Politicians may love to extol the virtues of small business, but big companies are still the key to growth
By Charles Kenny
September 28, 2011 | Bloomberg Businessweek

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