Small Business vs. Corporations: The True Engine of the American Economy

Some are quick to believe that a model allowing multi-national corporation to thrive is vital and the most important piece in structuring our economic standing in the world. However, most underestimate the importance and utility of small businesses and how large a market they hold in the American economy. In fact, there is every reason to believe that small business is the most vital form of business for economic security.

There are approximately 27.5 million small businesses in the United States. These small businesses employ half of all private sector employees, generate 65 percent of all new jobs (annually) and provide 50% of the gross domestic product (GDP).

Besides employing the majority of new jobs in the United States and generating (more than) half of the annual GDP, "research has shown a strong correlation between national economic growth and the level of new small business activity in previous years." 1 In fact, the economy is so sensitive to the activities of small businesses that "a drop in small business lending suggests (a reason for the) lower GDP (in 2012)." 

(Source)

Americans admire small business, and for good reason! During the economic recession (brought about by the 2008 financial collapse), small business owners have made sacrifices to protect and keep employees--unlike multi-national corporations, which overwhelmingly fire employees to increase their stock price and pay CEOs bonuses. In fact, "66% (of small business owners)... took less profit (in order) to pay employees rather than reduce staff" while some of the highest paid CEOs laid off the most workers. 

The other big benefit of small businesses is that they support local economies, provide a place of employment, and actually pay their taxes--unlike multinational corporations. It seems America needs to re-evaluate the value of small businesses and consider shifting its focus from wealth-consolidating corporations to job-creating small businesses. 

1. Kerin, Roger, Steven Hartley, and William Rudelius “Marketing." 11th Edition. McGraw-Hill. 2013. p. 79

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Other Related blog(s): Nouveau Economics, Lyceum Recordz