Are small businesses really the lifeblood of the American economy? Or are bigger companies pulling most of the weight while being demonized for their size?
Robert D. Atkinson and Michael Lind, authors of the new book Big Is Beautiful: Debunking the Myth of Small Business (published this April by the MIT Press), think big business is getting a raw deal, and they are looking to clear up the misconceptions that they believe have attached themselves to small businesses over the years.
Atkinson, founder and president of the Information Technology and Innovation Foundation (ITIF), spoke with Chief Executive about why big companies shouldn’t be punished for being successful, why policies toward small businesses are unfair, and why a level playing field for all businesses would benefit everyone. Here’s what he had to say:
Why bigger is better
Overall, there’s sort of an umbrella of goodwill around small business, so that anytime a policymaker or politician wants to talk about small business they’ll talk about, “It’s good for jobs. It’s good for innovation. They’re a pillar of their community.” Just on and on and on. And at the same time as we put down in the book, if you want to label something as derogative or negative, you just put the label “big” in front it.
And I think that’s the main point, that when you really look at the economic performance, which is what we do in chapter four, and you just go through and you look at virtually every study that looks at this finds that on average for the U.S., large companies pay higher wages, they have better benefits, they injure their workers less, they lay their workers off less, they’re more productive, they export more, they’re more innovative, they’re more diverse, they employ more organized labor, they have better cybersecurity.
Really anything you can imagine, they just do better. And partly it’s because when you’re an organization, when you’re a business and you’re doing better, you’re going to get bigger. So, part of it is that better organizations get bigger. Secondly, scale does really matter and scale gives advantages that lets companies be able to show that kind of performance.
Size-neutral policy approach
One of the things that we do in chapter 12 is to just go through every document in the U.S. to show how biased policies are towards small businesses. When you survey any average American or talk to people in Washington, they actually think it’s the other way around. It must be the large companies that are getting all the benefits because they hire all the lobbyists and the like. In fact, when you look at tax policy, for example, they pay less in taxes.
“This is not just about demonizing small companies. What it really is about is to get to a level playing field both in terms of policy and in terms of attitude.”
But regulation is really the big area. Congress has passed regulations that say that they can’t pass regulations on small businesses. And then a lot of the regulations just have these giant carve-outs for smaller companies. So, one of my dubious favorites is, if you have fewer than 15 workers you can legally discriminate against Muslims and the elderly. Why should you be allowed to discriminate no matter what? Big companies have to live by these rules and there’s no reason small companies shouldn’t have to live by them.
Our view is that procurement should be based on one factor and one factor only, and that is getting the best deal for the government and by definition, by extension for the taxpayer. It shouldn’t be a social policy to help small companies do government procurement. And these, are really pretty endemic. It’s not like this is a little minor thing. You see it at the state level where you have lots and lots of policies around regulatory exemptions.
And then, finally, the fact that we have a lot of direct programs that just give grants or subsidies or other kinds of financing to small companies. My favorite is SBA [Small Business Administration] loans. And when you really look at what SBA loans do, they don’t really do very much of anything. They just give a benefit to one small company at the expense of another one. So, when you’re giving loans, $760 million loans for dentists, I don’t get why there’s a market failure for dentists or why you need a government policy for dentists. Or gas—$742 million in loans for gas stations. Are they really telling me that nobody would open up a gas station unless they could get an SBA loan?
A level playing field
This is not just about demonizing small companies. What it really is about is to get to a level playing field both in terms of policy and in terms of attitude. It really is time to stop demonizing large companies for being big and just praising small companies just because they’re small. Let’s just get beyond that.
From a political perspective our argument for politicians who are right-of-center would be to say, “If you’re a Republican, one of the core tenets of Republican economic doctrine is that you trust markets and you really don’t think the heavy hand or the thumb of government should be picking winners and losers.” Much of what government policy does in this space is about picking winners and losers. It’s size-based industrial policy. And an argument would be, “I’m happy to have age-based industrial policy. Let’s give a little helping hand to a new company that wants to get off the ground.” Great. But once you’re off the ground we should be completely neutral. The government shouldn’t be saying that we’re going to go with bigs or we’re going to go with smalls.
For left-of-center folks, my argument would be a little different. And it would be, essentially, if you’re a progressive or Democrat generally, you care about the economy not based upon these sort of abstract notions of free markets, you care about the economy and economic policy because of what it produces in terms of outcomes. And the argument there is from the progressive goals that progressives articulate, things like better jobs, less inequality, more gender and racial diversity, all of these things which are good goals, big companies do a much better job at achieving those outcomes than small companies. So for them, embracing size neutrality would be a way to help them achieve their legitimate economic goals.