Small Business - The Real National Economy
Last week I was able to sit in on a meeting with a couple of highly placed European Commission officials. We were discussing what will soon become known as the SBA - the Small Business Act. 2009 will be a year of many events and publicity for this new piece of EU legislation.
Now I realise that this blog and website are about investment through the stock exchange and that small businesses are not usually listed on an exchange. Fair enough. However, investment is the study of business, economics, human nature and many other factors. But ultimately, it is mostly about business. So I figure that if I find out some interesting snippets of information, why not share?
I ought to point out that whilst the information below is in the public, it may not be very well known. There is nothing below that was ‘off the record’.
The following facts relate to small businesses in the EU, but one can presume that the figures are broadly similar for many developed non-EU nations. It would be quite easy to imagine, for example, that these numbers hold across North America. Ultimately, these are not business numbers, they are economic and societal numbers.
So:
99% of all companies in the European Union are SMEs (Small and Medium Enterprises)
92% of all companies have less than 10 employees
50% of all firms have just 1 person
The EU has only 43,000 “large” firms
I don’t know about you, but I was very surprised to see those numbers so high. However, when you think about it, business is the ‘long-tail’ of the economy. By their very nature, not every firm can become a global player - there are only so many areas big enough to take global players…
Needless to say, this makes small business the engine that drives an economy. We all may think of the stock market as a ‘barometer’ of business in a country, but this unseen army of retailers, service providers, traders, craftsmen et al are the real business in a country.
The point that the European Commission was making - and it is very sensible - is that new business legislation needs to be looked at from the perspective of a small firm. Will a small firm be able to cope with additional rules? Just how much red tape can a one person company really deal with?
This relates very nicely to a point that Felipe Gonzalez made when I saw him speak recently. He maintained that there is very little corporate mobility in Europe. A company starts small and will invariably one day die small. Most don’t last and most don’t grow very big. Interesting stuff, I hope you will agree.
This is so true for developing nations such as india too. Most of the firms are small and resort to local money lenders for their funding requirements. A capital mkt for small enterprenures is missing.
One needs to be a bit careful when generalizing about US small business conditions versus EU small business conditions. Like the US, US gov’t statistics show that small businesses account for some 52% of total US jobs, and have created 3/4ths of all ‘new’ US jobs over the past few years.
However, unlike EU small businesses, US small businesses are effectively under assault by the gov’t. Their sources of available business investment capital are becoming increasingly restricted and increasingly expensive (while the gov’t is providing billions in low interest loans to large corporations). The recent US gov’t stimulus bill contained essentially no money for small businesses. Additionally, small businesses are bearing a disproportionate share of rising state and local taxes, a disproportionate share of rising labor costs (i.e. gov’t increased the US minimum wage) etc., as well as a disproportionate share of increasing federal income taxes ( via the fact that gov’t ‘tax the rich’ changes in federal tax brackets also affect small business owners who have structured their small businesses as LLC’s or special corporations where business earnings flow through to the owner’s individual tax return).
The apparent point of all of this is that, unlike the EU gov’ts recognition that the small business model is a key to future EU economic recovery / growth, the US gov’t seems to be intent on the destruction of small businesses and the subsidizing of large corporations. I’ll leave speculations regarding this difference in policy to others at this point …
I totally agree, small businesses contribute greatly to the economy. However, there is a need to create a favorable economic environment for small businesses.