Last week, an Associated Press article on this page stated that “most small businesses are not particularly adept at creating jobs, at least not the best jobs.”
I don’t know what “best jobs” are supposed to be. I do know that large manufacturers, like our pharmaceutical companies, hire many well-educated, technically skilled workers who get paid more than those working for a lawn service. Both do valuable work. So the sentence seems “elitist.”
Here’s a basic fact: There is no job growth without population growth, so a fast-growing company can take workers from other companies only if the population is stable.
Over the last two years, our population has increased by about three million, so there will be more haircuts, more dry cleaning, more dentist and doctor visits needed to take care of them. This is job growth, and it is basically a replication of existing small businesses, not more car producers.
There are six million employer firms in the United States, and 99.9 percent are “small.”
More cars will be needed as well, but these are produced with few new workers hired. That is the nature of large manufacturers. General Electric Co. employs only 150,000 people nationwide. How has General Motors’ job creation been over the last 10 years? It has reduced its employment in the United States 20 percent since 2002, according to the New York Times. Ironically, the head of the Obama administration’s job-creation task force is the chief executive of General Electric.
Each week, 360,000 people lose a job in the United States, but more than that generally are hired, producing net new jobs.
This is not all the doing of those large firms that the AP article likes so much for job creation. The first thing to note is that all of them started as small businesses, a one-store start for Wal-Mart Stores Inc., a garage for Dell Inc., a desk for Bill Gates, a burger shop for McDonald’s Corp.
A second key consideration is that the winners were selected and supported by the market, chosen out of thousands of competing concepts that failed, but employed millions of people trying. The administration thinks it can sometimes pick such winners, as if we could all work for somebody and leave entrepreneurship to the bureaucrats (most of whom have never had a private-sector job).
Eight million people lost their jobs in the recession. Big firms did not fire them all, and they will not rehire them.
The local barbershop is operating below capacity; all five chairs are not staffed because consumer spending on “services” did not grow last year (and that is 70 percent of consumer spending).
So, to lower unemployment, existing firms must rehire people. If the new firms are to be the heroes that the AP article makes them out to be, we will need 1.6 million new firms employing an average of five workers per firm (net of firms terminating operations) to reemploy the eight million people who lost their jobs in the recession. In 2007, about 850,000 new firms were born but about 750,000 closed, so 1.6 million net new firms are unlikely saviors. Existing firms will have to rehire workers.
Half of the private workforce (excluding government) is employed by small businesses. There are about 10 million one-person firms of various types; these individuals are not employees of any firm. Critics complain that many firms fail, but it is this process that spawns the few giant firms we admire. They are tested in the market and rewarded with the profits that finance their growth.
Small businesses do not need subsidies and breaks, they just need a tax system that does not drain the profits they need to finance expansion and a regulatory structure that does not bleed their time and money complying with unproductive rules and red tape (issues cited as the No. 1 business problems by 40 percent of small firms, even in a recession).
Few small firms will become “giants,” but they will provide jobs for half the workforce in the nation and once in a while produce the innovation that enables them to become the giant firms that we admire and that make us the wealthiest country in the world