Small Businesses Are the Lifeblood of Economic Growth

Jan 11, 2023 | Finconomics 101, No Bull Economics

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Policymakers need to protect and encourage small businesses because of the critical role they play in driving growth during tough economic times. While consolidation may sustain margins and large companies during downturns, the economy needs to grow its way out of our current problems.  

Key Points

Small businesses (<19 employees) represent a critical component of the US economy, even as their counts continue to decline. As evident below, approximately 5MM small business establishments have disappeared over the last 10+ years while the number of large companies with 500+ employees has increased by about 4MM. Given the importance of entrepreneurship in driving economic growth, it is a troublesome development that the ratio of small-to-large companies has decreased by half from 6x to under 3x. While consolidation, and scale, may provide cost savings in a difficult economy, a healthy growth policy should emphasize new business formation. This is especially important in an inflationary environment when increased competition and supply are essential to keeping a lid on prices.  

Business Size Graph
Large vs. Small Business Employment

While the most recent NFIB small business survey reveals fundamental pressures, the more important revelation is the innate desire of small businesses to grow. As opposed to the massive layoffs we see with the large tech companies, the survey below reveals the efforts by small businesses to hire & make capital outlays during a time when their sales & profits are pressured severely. Policymakers must carefully guard and nurture American small businesses because of their willingness to take our economic growth on their shoulders.  

Small Business Statistics Graph
Small Business Statistics Graph
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