Advertisement

Having Lots Of People Work For Small Firms Is A Sign Your Economy Is Dysfunctional

Entrepreneurs are very important to economic growth, and politicians like to talk about small businesses, so every once in a while, people rediscover and trumpet the fact that America has really few small businesses by international standards. Brad Plumer citing John Schmitt (PDF) suggests that health care may be the culprit. This, however, seems to me to be a case where you want to look at both ends of the chart and then re-check your theory:

If you’re talking about an economic indicator in which the U.S., U.K., Germany, Finland, and Denmark are at the bottom and Greece, Italy, Portugal, Spain, and Hungary are at the top, then you’re looking at an economic indicator in which you want to be at the bottom. The economically more successful countries are less dominated by small firms. That shows us, I think, that the link between entrepreneurship and small businesses is much weaker than is often posited. There’s nothing particularly entrepreneurial about taking over the pharmacy from your father, then finding that the good news is that other pharmacists are legally prohibited from competing with you while the bad news is that you can’t legally compete with other pharmacists. Nor is there anything particularly small about an entrepreneurial business like Google (or, for that matter, CVS). Successful firms start small, but then get big and often put a lot of smaller rivals out of business. The existence of a huge quantity of small business probably implies that you have relatively few very successful firms, not that tons of people started entrepreneurial new businesses.

Advertisement