Small Businesses Get Big Political Hype. What's The Reality?
The House is scheduled to vote this week on a small-business tax cut bill offered up by Republicans. It's just the latest piece of legislation to focus on small businesses, which are widely praised in the political discourse as engines of job creation. The adoration is nearly universal — and it reflects something beyond economic reality.
"Small businesses create 2 out of every 3 jobs in this economy, so our recovery depends on them," President Obama said in 2012 at a New Jersey sandwich shop where he met with small-business owners.
Republican presidential candidate Mitt Romney is big on small business, too.
"My job, if I'm president, among other things, is to make sure that we are the best country in the world for small business," he said at a recent campaign stop.
And in the House, Majority Leader Eric Cantor says, "We should all be able to rally around the cause of small businesses."
How much do politicians love small businesses? The phrase appeared in the Congressional Record more than 10,000 times in just the past two years, according to the Sunlight Foundation Capitol Words database. That's less than members of Congress talked about taxes, but far more references than they made to the debt limit, for instance. And there's a reason.
"The small-business owner is always the good guy in the movies," says Frank Luntz, a language specialist and a GOP pollster. "Being a small-business owner is the American dream. It's the epitome of success. People respect that individual."
Americans may have mixed feelings about big business and Wall Street, but Luntz says they identify with small business and Main Street — and politicians are keenly aware of it.
"I've tested language," says Luntz, explaining some of the science behind the vocabulary. "I've tested 'small-business owner,' 'job creator,' 'innovator,' 'entrepreneur' and nothing tests better than 'small-business owner' because it represents all of those. It represents someone willing to take a risk. It represents hard work and perseverance."
So, perhaps it's no wonder that more than a quarter of the people running in California for the state Legislature or Congress this June list themselves on the ballot as businesspeople or small-business owners. In some cases, it's a stretch, says Allan Hoffenblum, publisher of the California Target Book and a former Republican political consultant.
"There's a state senator seeking re-election in a tough election, but he's not putting 'state senator' under his name," Hoffenblum says. "He's putting 'businessman' under his name."
In all, 48 people list themselves as small-business owners, with 160 making sure business is somewhere in their three-word-maximum job description. Hoffenblum says it's all about sending a message.
"It says, 'I'm not one of them' — you know, the politicians," he says. " 'I've had life experiences. I've met a payroll.' It's the type of ballot designation that you know appeals to the voters."
It's just one more manifestation of what has been a long-standing political tradition of giving a lot of love to the little guy. But this intense focus on small businesses may overstate the economic case. Big businesses actually employ far more people than small ones and, according to government data, the overwhelming majority of small businesses don't employ anyone at all.
The figure often cited by politicians on both sides of the aisle is that 65 percent of net new jobs are created by small businesses. That one is true. But there's more to it.
"That masks a huge amount of people being hired and let go," says Kelly Edmiston, a senior economist at the Federal Reserve Bank of Kansas City. He says small-business jobs are far less stable than jobs at big businesses, in part because small businesses are created and also fail at such a high rate.
"They're very much more volatile jobs, so there's simply not the security there," Edmiston says.
Edmiston also says small businesses tend to offer lower pay and fewer benefits.
"Small businesses are important job creators, but I don't think we want an economy made up totally of small businesses," he says.
But before you think Edmiston is some kind of small-business hater, he actually concludes that in terms of economic development, it makes far more sense for states and cities to promote small business than to spend tons of money to try to lure a large factory into town.
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