What Small Business Wants

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A beautiful graph from the New York Times illustrating what I was saying about credit: it's just not the major issue on peoples' radar.  In fact, as the recession wears on, it becomes negligible:


economix-14smallbizprob-custom2.jpg

Taxes, government regulation and customer demand are the consistent big winners on this question, and concerns about taxes have been largely flat since the Bush tax cuts passed.  Demand is clearly what's driving poor business growth right now.


But I think people are often confused about why that's important.  Obviously I think unemployment is the biggest issue at this stage in the recession, and so I don't want to knock the role of businesses as employers.  But they fill another, arguably more important role: they fill tiny gaps that are needed to make the economy work.

While it's true that most of the jobs created by small businesses that start small and get big, there's a lot of value in companies that stay small.  It's not economical to produce everything on a massive scale.  The wire factory I profiled is doing small run jobs for enormous industrial concerns.  Those jobs wouldn't be profitable at a Boeing plant; they work because it's a relatively small operation.

Obviously, this changes over time--things that used to be done on a yeoman scale are sometimes standardized and mass produced.  But an enormous amount of work is doing things like custom bins to hold very specific parts that Toyota doesn't want damaged.  Toyota doesn't need a zillion of them, and no one else needs any.

This is vital, even if they don't provide a ton of net new jobs.  Productivity improvements at this level mean productivity enhancements rippling up and down the supply chain.  And when businesses do figure out how to standardize and grow some previously custom line of work, those businesses start small, and build on the knowledge gained by other small businesses in that space.

That's why it's important to worry about things like the regulatory burden, which falls heaviest on businesses that can't afford a small fleet of full-time staff to ensure that they are in compliance.  That's why it's important to worry about whether taxation is choking off their growth--which doesn't mean that we should grant them tax subsidies, but only that this is one of the costs that must be counted when we're considering tax hikes.  These guys are one of the main factors that allow our economy to be as great as it (usually) is.  Their problems become our problems very quickly.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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