Monday, September 15, 2003
There is a subtle change occurring in the fabric of American society, one that we may not immediately notice. But it is a powerful change, one that bodes ill for us if it continues at its current pace. And that is the replacement of small business in America by large corporations as the engine of economic growth.
That this is occurring is undeniable. According to records kept by the Small Business Administration, in 1988 small businesses (defined as having 500 employees or less) accounted for 54.6% of employment in the United States. In 2003, that number has shrunk to 50.1%. Never before has small business accounted for less that 50% of total employment in the United States. But if the current downward trend continues (as it has every year except for 2001, when it remained at 50.9%), then in 2004 large corporations will become the dominant employer in the United States.
This should not be taken as an attack on corporations. They serve an important function in society: creating economies of scale in high-tech and high-labor products. If I want a car, I want a Ford rather than Joe's Automobile. If I am looking for a new computer, I'll take a Dell instead of something slapped together in a dank basement. Thanks to corporations we have affordable computers, appliances, vehicles...the list can go on and on.
Rather, this is an attack against both parties, who, quite frankly, see it in their best interest to minimize small business employment. We'll get to that in a minute. Let's look at how each party attacks small business.
The Republican Party has reduced dividend taxes and the upper income tax bracket. The former benefits the large corporations who senior leadership holds large amounts of the company's stock. The latter benefits the top 5% of taxpayers in the economic food chain. It would also benefit small business owners, who are commonly taxed at individual rates as opposed to corporate rates. Except, that as individuals they become subject to the Alternative Minimum Tax (AMT), which has yet to be addressed by Congress or the White House. This regressive piece of 70s legislation effectively boosts the small business owner's taxes much higher, which is a major impediment to growth. Meanwhile the large corporation makes more money on the lower taxes, and apparently they are pocketing the cash since unemployment has risen steadily since Bush took office.
The Democrats are no better. They have relentlessly battered small business owners with minimum wage increases and tax increases. Minimum wage increases sound good, but are ultimately damaging to both the small business owner and the worker. The owner is suddenly forced to come up with possibly tens of thousands of dollars in increased wages. Where is that supposed to come from? Well, he can either increase the price of his product or he can lay off some employees to pay the rest. The first choice can result in lower sales and increased financial pressure, the second increases unemployment and forces the remaining workers to do more work to maintain sales income. And tax increases, like the AMT, unfairly target small business owners since they pay the high-end individual rate while corporations pay the lower business-tax rate. Small business owners pay the 35% tax rate on every dollar earned after $311,950. Corporations don't pay the 35% tax rate until they hit $10,000,000. Increasing the personal tax rate hammers small business but leaves the corporations in the clear.
The result is that the small business owner is attacked from both ends of the political spectrum. Add in the spiraling costs of both health and liability insurance (thanks to a lack of tort reform and frivolous lawsuits), and it is small wonder that small business owners are on the decline.
Which suits both parties just fine. The GOP's natural allies are big business. The more people that are employed by corporations, the more people that have an interest in corporations doing well. Democrats’ top allies are the trade unions and public sector services. There is little unionism in real estate, finance, professional services and other areas where small business dominate. Hence, the Democrats have little interest. As a bonus, if the shutting down of small business creates unemployment, then the Democrats can promise those people government assistance and try to tie them to the party in that fashion. People vote their pocketbook, regardless of whether it's a corporate paycheck or government largess that is filling it.
All this creates an environment that allows the Wal-Marts of the world to dominate. They move in and aggressively cut their prices, knowing they can make up the loss at their other stores. The small business owners, already hemmed in by spiraling insurance costs and wage increases, begin to lose business. They can't raise prices to make up the loss in sales. Eventually, they close down. Now there are maybe 100 or so people out of work. But hey, the new Wal-Mart needs people. So these people - who were probably making $10 an hour at least - are now making between $6.25 and $8.00. If they're lucky, they can work hard and move up to $9.15 an hour after a couple of years. But Wal-Mart is a corporation that has to answer to stockholders. It has a corporate policy for each store of limiting wages to a hard percentage of sales. So when the cashiers start making $10 an hour after all that hard work, they get dumped and new trainees come in at the $6.25 level again.
And even if you keep your job, you are making so much less, you can only afford to shop at one place: Wal-Mart. Which is the real evil behind all of this. Wal-Mart moves into a small community and destroys small business, scoops up the unemployed and gives them lower wages. These people then shop at Wal-Mart, buying Wal-Mart goods. So the company gets back a high percentage of the money it pays out to its employees. The same happens at Target, Costco and others.
And so it goes: Small business flounders and dies while both parties court their own special groups and mass-retailers fill the employment void creating wage slaves who earn just enough to buy the company's own products. Not exactly what I would call the American dream.