by Adam Ozimek | shared from Forbes.com
As an economist I find myself regularly defending claims that are uncontroversial among economists but to normal people are simply absurd. One of these is that there is nothing magical about small businesses, and “doing more for small businesses”, “helping small businesses”, and a million other pro small business political tropes are actually not good ideas.
The newest survey of a sample of top economists from the University of Chicago’s expert panel verifies just how uncontrovertial this is to economists. They asked the economists whether they agreed, disagreed, or were uncertain about the following statement:
The federal government would make the average U.S. citizen better off by using policies that directly focus more on increasing small business growth than growth of economic output overall.
The results, summarized in the graphs below, show that economists overwhelmingly disagree with the statement. None agree with it, and only a few are uncertain.
Many will claim that small businesses are job creators, but the evidence shows this is not true. A 2010 study by Haltiwanger, Jarmin, and Miranda shows that is is young businesses, not small that really matter for job creation. Here is how the NBER Digest summarizes the results:
In this study, which relies on data from the Census Bureau, the authors confirm that smaller companies created more jobs than larger companies during 1992-2005. But the importance of firm size depends very much on the assumptions one makes about the base year of the analysis, the number of employees used to define “small”, and other factors. The real driver of disproportionate job growth, they find, is not small companies, but young companies. It is the startup firms that generate the surge of jobs that earlier research attributed to small companies.
Indeed, grouped in traditional ways, businesses tend to create jobs in proportion to their importance in the economy. Thus, large mature firms – those more than ten years old and with more than 500 workers – employed about 45 percent of all private-sector workers and accounted for almost 40 percent of job creation and destruction in this study.
There are many reasons why big businesses can be better than small businesses. How well would Amazon or Walmart work as a small business? The scale they operate at allows them to lower costs and operate more efficiently, and we would lose this if they were replaced by small businesses. Would our lives be better if instead of Apple we has ten thousand small computer companies? Economies of scale and scope abound in our economy, if they didn’t you wouldn’t observe as many large businesses as you do. Regulations may affect firm size on the margin, but there is no regulation that explains the domination of Apple, Walmart, Amazon, and other big businesses.
We would be better off if people would stop romanticizing small businesses and instead focused on the outcomes that really matter, like economic growth and unemployment.
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