Politicians of all stripes continue to profess belief in the American dream – that if one works hard, one will succeed, because America is the land of opportunity. It is the country where one can start a business of one’s own and succeed with the sweat from one’s own brow. The small business owner, in this respect, takes on the heroic mantle and receives the praise, adulation, and verbal support from the political elite. Washington exults the small business owner: They will lead a hiring boom and dig America out from this economic quagmire.
During this financial crisis, the failure of the small business model in this country has been cruelly exposed, yet our politicians continue to exploit them as a mythological paragon. In reality, the small business owner is in as much peril as the rest of the country, and if we wants to solve our unemployment problems, it is probably going to be big business that does it.
According to OECD figures, small businesses account for only about 10% of all American jobs. Large corporations, on the other hand, account for about 70% – much higher than the developed world average of about 50%. And it is these large corporations that are doing most of the hiring (and firing) in this economy.
To be fair, small businesses are not hiring because capital is rather (artificially) tight at the moment, and banks are far too guarded with the (government-sponsored) liquidity that they hold to loan it up to untested small enterprises. This is, patently, unfair. Large corporations however, do have the access to capital and can bank of their reputations and large presences to secure the loans they need to expand.
Large corporations have also recovered from the recession a lot quicker than the rest of the economy. The overall profits from the S&P 500, which accounts for some of the largest corporations in America, rocketed 47% in 2010, a level of growth that smaller businesses cannot hope to replicate.
It is not that we should ignore the plight of the small business and concentrate on (continuing) to coddle the richest and largest corporations. It is that we have to be realistic. There are millions of Americans out of work at the moment and families going hungry in this, the Land of Plenty. While a small business-led job recovery would be ideal – who wouldn’t want to enter a store and shake the hand of the person whose name hangs over the door – this is simply untenable at the moment and it always has been. Despite the small-business hero worship, this country has been a corporate land for the past few decades, and it was through a lifetime of employment in these large corporations that people entered the middle class.
Which is why we need to be practical, deal with the immediate, and recognize this plain fact: big corporations will be the engine of job growth in this country. No, this doesn’t mean plying corporate executives with ever-lower taxes or allowing tax-dodging loopholes to be exploited by on-staff accountants. This means recognizing that the myth of the heroic small-business owner class is a falsehood in this country. We have to admit that such a myth hides the nature of the American economy.
Big corporations have done their fair share in contributing to American unemployment – what with outsourcing and tax evasion – but they will, hopefully, lead the U.S. into prosperity again. It is not ideal, but perhaps it is time for the U.S. to face facts and acknowledge that America is unsuited for entrepreneurship in the way it once was (or as others are). Recognizing this failing – of policy, regulation, government, and finance – might assist us in recognizing the very deep problems we have inherited and, in turn, to help spur small business growth again.
Photo Credit: Yire Shalom 3000