Are you wondering why small business isn’t “saving” the economy? Check out my new piece for Harvard Business Review: “Why America Is Losing Its Entrepreneurial Edge.”
Recent data shows that new business formation is half of what it was in 1970 while more businesses are dropping out of the market. I suggest that small business is suffering in the face of industries that have been consolidated into giant, slow-moving behemoths, all because of our policy choices and the creation of megabanks.
America used to have a myth that it supported and honored entrepreneurs. I was certainly raised with it. My father owns a farm store, my mother ran a pie shop, my sister has a dance school, my Italian grandparents had their own bakeries, et cetera. I always thought that owning your own business was not only possible, it was preferable, somehow more noble than working in the boiler room of someone else’s company. I am an American, and it wasn’t until I arrived in Paris that I realized that this was a myth which had not been internalized by everybody, everywhere. In France, I was forced to confront the notion that some people saw small business as being a petty, money grubbing merchant who could not survive in the larger, more important world of state institutions and major businesses. Quite a shock, really.
Yet this is a myth I still cherish and here’s why: small businesses tend to produce the greatest job growth. Huge companies are more dominant in an industry, but small companies are the most likely to grow and create a new position with wealth, a tax base, a market for other businesses and all that good stuff. Yet our policies are making the world more friendly to the big and more hostile to the small. There was a guy who wrote about this a lot in the 18th century: Adam Smith. In his Wealth of Nations, he saw large businesses protected by the government as unjust and inferior to smaller businesses with accountability to their neighbors. His theory was called capitalism and we have gotten away from it in recent years.
Perhaps we will soon find our way back.