Small businesses a magic bullet for a down economy? (Part 4)

Oct 20, 2011

Stop me if you’ve heard this one before...

"We genuinely believe small business is the backbone of America, it’s going to the key for us to be able to put a lot of folks back to work."

That’s President Obama earlier this year.

Warm feelings about small business come at all levels, and on both sides of the aisle.

Here’s Michigan’s Republican Governor Rick Synder this summer:

"Talk about the jobs you’re creating, even if it’s one job – that is the backbone of the reinvention of Michigan."

Or Chicago Mayor Rahm Emanuel last week at the SmallBizExpo:

"Nothing is more important to our econonmic expansion than the small business of Chicago and the small business of tomorrow that will be in Chicago."

It’s more than just political talk.

Helping small businesses

Michigan exempted most small business from its 6 percent corporate tax rate. Cleveland’s Cuyahoga County is shifting its economic development strategy to help small to medium sized businesses.

All of this got University of Chicago economist Erik Hurst thinking:

"Is is true that most small businesses contribute to job growth?"

The answer is no.

Hurst  teaches at the Booth School of Business and just published research based on an analysis of federal government and foundational data about small businesses.

First though - here’s one important distinction. The Small Business Administration defines small businesses differently according to the type of company –for example, in the case of manufacturing, the SBA thinks a small business is anything with less than 500 workers.

Hurst uses a definition of small businesses of having one to 19 employees. That’s actually what 90 percent of the businesses in this country are – they have 20 or fewer workers.

In Illinois, three-quarters of the one million small businesses are made up of just one person – people who are self-employed.

Keeping it small

Hurst’s research also looked at intentions of small business owners – and this is the big thing – a lot of them don’t want to grow.

"The vast majority of small businesses are in a very few handful of industries, like your local dentist, your local plumber, your local shopkeeper, and most of them never grow. And ones that do grow – the Googles, the Groupons, the Wal-Marts, are very rare of small businesses that start, and moreover, most small businesses like your local dentist, have no desire to either innovate or grow," says Hurst.

Dr. Mark Gamalinda has had a dental practice in the North Side Chicago neighborhood of Andersonville for almost 25 years.

"It was just me, myself and I for the first year and just slowly growing the practice and then using more and more staff as the practice grew," he says.

Dr. Gamalinda seems like the perfect dentist for nervous patients. He’s quiet, his office an oasis of warm, golden walls. Quotes from people like Emily Dickinson are painted inside patient rooms.

And his practice has grown, with a patient base up to almost 4,000 people, and three assistants, a hygienist and a receptionist.

He goes to Costco to buy supplies. He supports small, local business too. He sends out some work to a local lab, and uses another company that makes crowns and other dental prosthetics he can’t make himself.

And now that he’s 50, he’s thinking about adding one final worker – another dentist who can eventually take over his practice.

A stable community

The Andersonville Chamber of Commerce says the few blocks that make up its business area are 93 percent locally owned like Dr. Gamalinda’s.

Ellen Shepard is in charge of the chamber.

"When we think about the model for economic growth, I think we have to think less of the growth of the wealth of the economy and more towards the growth of self sufficiency, internally, within communities," says Shepard.

It’s clear those big companies – those Googles, and Groupons – and yes, Wal-Marts still are the biggest drivers of the economy, and of job creation. But Shepard said that doesn’t mean we should count out even the one-man business – because maybe a healthy combination of both is what the new economy should be.

 

*This week our Changing Gears team has been looking at magic bullets – the big ideas that we've been told can solve our economic crisis.