Corporate Power, Competition, and Small Business Policy

By SBE Council at 27 May, 2022, 1:08 pm

SMALL BUSINESS INSIDER

Ironically, more government regulation will only serve to distort markets, drive costs higher, create new barriers that impede entrepreneurship, and ultimately fuel consolidation. Larger businesses have the scale and capital to absorb these costs and navigate the regulatory morass. Small businesses do not have that expertise or the resources.

By Karen Kerrigan and Raymond Keating –

Are entrepreneurs and small business owners overly worried about “corporate power” and “a lack of competition” in the economy? The data, trends, and surveys of small business owners do not seem to back up these claims being made by various government officials, members of Congress and President Biden. In fact, entrepreneurial activity and risk-taking are quite vibrant in spite of the disruption caused by the pandemic and the long list of current challenges including inflation, labor shortages, ongoing supply chain problems, and the erosion of business financial health.

In his Executive Order on Competition, which declared that “the economy is booming” under his leadership, President Biden ominously warned:

“For decades, corporate consolidation has been accelerating. In over 75% of U.S. industries, a smaller number of large companies now control more of the business than they did twenty years ago.”

And in a recent speech by Assistant Attorney General Jonathan Kanter, who heads the Department of Justice antitrust division, it was noted:

“Corporate power has grown to levels that leave our fellow citizens concerned and confused.”

Of course, it is not unusual for activist regulators to hold views that are detached from economic reality. And that is certainly the case in the realm of antitrust regulation today, especially when one hears a leading antitrust regulator declare that so-called corporate power leaves citizens “concerned and confused.”

When considering the fact that the U.S. economy overwhelming is a small business economy, we at SBE Council do not understand how elected officials and their regulatory appointees are unable to grasp economic facts and realities, and use their platforms to promote a doom-and-gloom situation that does not exist, or is actually made worse by overregulation of certain sectors of the economy.

The Vast Majority of Firms Across Industries are Small Business

According to the latest Census Bureau data (2019), and across all industries, we find that among employer firms:

● Businesses with fewer than 100 employees accounted for 98.1% of all firms

● Businesses with fewer than 20 employees made up 89.0%

● Businesses with fewer than 10 employees accounted for 78.5%

Again, this breakdown holds across industries. For example, among employer firms in manufacturing: Businesses with fewer than 100 employees accounted to 93.1% of all such firms, those with fewer than 20 employees registered 74.3%, and firms with fewer than 10 employees accounted for 59.2%.

In retail trade: Businesses with fewer than 100 employees accounted for 98.4% of all such firms, those with fewer than 20 employees made up 90.9%, and firms with fewer than 10 employees accounted for 80.2%.

In telecommunications: Businesses with fewer than 100 employees made up 95.7% of all such firms, those with fewer than 20 employees accounted for 85.0%, and firms with fewer than 10 employees accounted for 75.8%.

Add in nonemployer businesses – that is, one person businesses – and then the share of U.S. businesses with fewer than 20 workers registers 98.0%, and the share with fewer than 10 employees at 96.0%.

Out of approximately 32.6 million total businesses in the U.S., only 20,868 had 500 or more employees.

Yes, America’s economy is about small business.

Surging Interest in Entrepreneurship

If the economy is barren of competitive opportunity, why then are people starting new businesses in record numbers?

For the past two-plus years, there has been a record number of new business applications filed. According to the U.S. Census Bureau, 5.4 million people filed business applications to start new businesses in 2021, an increase of 53% from 2019 and the most of any year on record. The upsurge began in 2020, and there seems to be no slowing down in 2022. These new business applications represent a very broad swath of industries.

Indeed, we have long been concerned about the state of U.S. entrepreneurship. New business creation hit a low point during the recession of late 2007 to mid-2009 and its aftermath, where during a certain period of time more businesses were being closed than started. But the dearth in entrepreneurship has certainly not been about so-called corporate power. Instead, it has been about policies at all levels of government, the state of the economy, and attitudes affecting entrepreneurship.

So, there is real hope in the dramatic leap in new business applications occurring after the pandemic hit in 2020. Policies must continue to enable this activity, and encourage people who filed business applications to actually launch those businesses.

According to the Census Bureau, out of the total business applications filed in January 2022 (430,411), it is estimated that only 31,287 businesses will actually form over the course of a year, and 40,433 will form over two years. So, aspiring or “almost” entrepreneurs need as much encouragement as possible to take that next step toward launching their businesses, and the economic and policy environments will greatly influence whether this potentially great entrepreneurial boom, goes bust.

It is a critical moment for U.S. entrepreneurship. The success of these pandemic startups can positively impact America’s entrepreneurial biome for years to come. When individuals with an entrepreneurial dream see risk-taking succeed, it creates a positive cycle for entrepreneurial activity. Modeling matters – the “if she or he can do it, then so can I” mindset plays an important role in turning entrepreneurial aspirations into real businesses.

Again, policy matters too. And on that front, the startup entrepreneurs SBE Council polled in a recent survey did not give high marks to President Biden and Congress. These new entrepreneurs do not believe Congress or the President are helping the economy or businesses like theirs.

Current Issues and Policy Solutions

The top issues of entrepreneurs and small business owners are high inflation, the direction of the economy, labor shortages, taxes, high health coverage costs, and supply chain challenges. Regulating and hammering bigger business is not a priority.

Unfortunately, the more urgent challenges facing small businesses are beginning to erode their financial health and viability. According to a new SCORE survey, it was reported that 62.7% of small business owners “have seen their profits decline over the past six months. Only 15.5% reported profits were higher than expected.”

Policymakers need to help existing small businesses and encourage new business formation by lowering government costs and barriers. Not by imposing new regulatory burdens, costs and red tape. That means providing tax and regulatory relief, as opposed to pushing a policy regime focused on more regulation and higher taxes.

Moreover, new entrepreneurs do not view “big tech” as a big problem – quite the opposite. SBE Council’s survey of new entrepreneurs makes clear that online marketplaces, electronic payments, social media platforms and other tech tools were vital to their decision to launch, and remain critical to their firms’ ongoing growth.

In fact, 60% of startup entrepreneurs in the survey expressed worry that efforts being pursued by the Biden administration and Congress to regulate big tech, , such as the “American Innovation and Choice Online Act” (S.2992), will negatively affect sales, customer communications, financial health, and operations of their businesses. Specifically, they believe government regulatory action will curtail access to consumers and customer communication, increase the cost of technology and online tools, eliminate the free services they use, and disrupt back-office support and shipping.

So, big business and big tech are not big issues that concern entrepreneurs. In the not-so-good- news category for the White House, “President Biden’s policies” actually rank as a top three impediment, according to SBE Council’s survey of new entrepreneurs. When asked what issues are important for President Biden and Congress to address that will help their new businesses succeed, new entrepreneurs responded:

● Lowering taxes and a simpler tax system

● Curbing inflationary pressures

● Solutions to supply chain disruptions

● Affordable health coverage

● Access to capital

● Labor shortages

President Biden and some members of Congress continues to point the blame at big business and various industry sectors for every ill facing our economy. Perhaps it’s time to review and pivot on their policy agenda. We recommend getting out more and talking with entrepreneurs. They see endless opportunity and they are America’s hope for the future. Our economy needs many more of them, but policies – pro-growth policies – must enable their growth. Policies that add more costs and harm innovation work directly against our small business economy.

Related Content:

Congress, President Need a Small-Business Reality Check, Inside Sources Op-Ed by Karen Kerrigan, April 26, 2022.

Can Congress Micro-Manage an Economy that is Relentlessly Evolving? Small Business Insider, February 2022.

Pandemic Startups See Opportunity, but President Biden’s Policies Undermine Their Ambitions, TIPPs Insight Op-Ed, March 2022.

Letter to House Small Business Committee on “Competition and the Small Business Landscape,” Letter for the Record, March 2022.

Biden’s “Competition” Executive Order and Big Tech: Hits Small Businesses, Entrepreneurship and Misses on Economic Common Sense, Small Business Insider, September 2021.

Biden EO Will Greatly Harm Competition and Economic Vibrancy, Not Promote It, Media Release, January 2021.

Karen Kerrigan is president & CEO and Raymond Keating is chief economist of the Small Business & Entrepreneurship Council.