Punchinello’s Chronicles

September 26, 2008

Small Business: 50% Gross Domestic Product!

Filed under: Butterfly Wings — Punchinello @ 11:30 pm
Tags: , , ,

Back in the 1980s, the corporate and industrial model wasn’t doing so well, what with huge recessions and banking problems, financial collapses, the savings and loan crisis, and so forth. OPEC had slammed us with a new problem of energy prices, and economists were saying that America was in trouble. Small business was a known sector of the economy, but not enough to really matter.

A recent study by Katherine Kobe (PDF file), done for the Small Business Administration (SBA) Office of Advocacy, shows that from 1998 through 2004, the small business sector has been holding steady at about 50% of the entire gross domestic product of the United States! That’s a stunning number!

Whether or not we like it, entire countries nowadays are having to look at themselves as “stores,” sort of like a mall. The mall is the national boundary, and there are different malls all around the world. It’s not a retail mall, but instead a place where everything, everyone, and every place is involved in business. We buy things from other countries, and we sell things to other countries.

If we don’t have anything to sell, nobody will send money to the country. If all we do is buy, where do we get the money to make those purchases? It happens that for the moment, we’re living on debt. We just borrow the money to buy whatever we want. We do it as a country, and we do it as individuals and families.

So where is all the stuff we make and sell? It used to be that economists looked at large industrial and manufacturing companies, construction giants, energy companies, and huge retailers. All those companies have either been in trouble or they’ve become multinational enterprises. And still, “small business” has been the poor relation, hidden away from view.

A small business is generally described as one with under 100 employees, and less than somewhere around $6-million in annual revenues. With the development of the North American Industry Classification System (NAICS), businesses are assigned a “type” code, and the SBA lists annual revenues below which make them a small business. Another aspect is that generally, the small business isn’t “dominant” within its field.

A microbusiness, also known as a “mom-and-pop” business, more typically refers to a business run out of a home or single brick-and-mortar location. Annual revenues are considered from the perspective of declared income, tabulated by organizations such as the IRS.

What’s interesting here is that 2004 was just prior to what might be called the explosion into e-commerce, online retailing, and Web startups. Entrepreneurs everywhere are taking on the role of international companies, selling not only to US buyers but all over the world. A lot of that money doesn’t show up in the tax rolls.

Additionally, an increasing number of people caught in financial troubles aren’t filing taxes. The barter economy (gray market), not to mention the black market of illegal goods and services of course aren’t noted either. So just how “big” is Big Business? It may be that we should make a distinction between a Global Enterprise (international), a Large Corporation (national chains), and a regular Business (everything else).

Sadly, the single exception to all this is public-sector government. They produce nothing anyone would buy or that we can sell. They spend revenues without limits, have no accountability to any business principles, and employ an ever-increasing number of workers. They also demand that profitable businesses give away large amounts of money to people and programs producing nothing. The government is sort of like an anchor around everyone’s neck.

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