Wednesday, November 16, 2011

EconomicsUSA: Small Businesses: Do small businesses really lead in job growth?

Open Forum, Powering small business success (Nov9,2k11)
— Reposted here by EconoMix

Are Small Businesses Really Saving Our Economy?

The media loves small businesses. Pundits sound off daily on the benefits of keeping corner stores in operation, politicians exhibit empathy for small business owners in speeches, heck—even I’ve written that shopping local can save us all.
But lately, my beliefs have been called into question. For everyone who loves small business and credits them with saving our economy, there are an equal number of people who believe otherwise. Case in point: reports of falling small business employment and data that attributes job creation with mid-size firms.
So what’s the real answer? Are small businesses saving our economy or not?

Read more ... click the time-stamp below:

To find out, I enlisted the help of Thomas Boston, Ph.D., professor of economics at Georgia Tech’s School of Economics and CEO of EuQuant, an economic consulting firm in Atlanta. Turns out, the answer is a little complicated.
He says it’s important to look at the economy as a "dynamic process." At any given point, some businesses are eliminating jobs while others are adding them. “If you focus on the net difference, small businesses are adding more jobs, especially startup companies,” he says.
Boston attributes the largest amount of job growth to startup companies that have been around for longer than five years, or companies in their "third stage."
“The first stage is the startup stage, the second stage is where you are established and growing and the third stage is where you become a professionally managed enterprise with formal processes in place; this is the stage where companies can grow dynamically and add more jobs,” he explains.
So if small businesses are the ones adding all the jobs, are big businesses the enemy?
Boston says no. Small businesses operate in three kinds of business models: selling retail products to consumers, selling to the government sector and selling to business-to-business transactions. “The businesses that really create a lot of jobs are in the business-to-business transactions with corporations; they are part of the corporate supply chain,” Boston says. (Cue Elton John’s "Circle of Life.")
So what exactly is holding our economy back?
Consumer spending. “Over two-thirds of the total economic output comes down to consumer spending, and since the recession, consumers have been saving 4.5 percent of their disposable income—that is significant and far more than in the past,” Boston says.
And although small businesses may be adding more jobs than any other sector, “they, alone, will not be the savior to our economy,” Boston says. “You have to look at the big picture; every ingredient needs to be working.”

What do you think?

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