Tuesday, September 27, 2011

Small Businesses outnumber Big Corporations and Capitalism still beats the alternative.

I was involved in a rather heated class discussion with two students who insisted that big corporations employ the majority of workers in this country and that there are more "big" corporations than small businesses in this country. I strongly disagreed as I've always understood that small businesses were really the backbone of America. According to the Small Business Administration, small firms:
  • Represent 99.7 percent of all employer firms.
  • Employ just over half of all private sector employees.Pay 44 percent of total U.S. private payroll.
  • Have generated 64 percent of net new jobs over the past 15 years.
  • Create more than half of the nonfarm private gross domestic product (GDP).
  • Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
  • Are 52 percent home-based and 2 percent franchises.
  • Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
  • Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.

Interesting eh? America needs small businesses. America runs on small businesses. Our towns, cities, counties, they all thrive on local small businesses. We hear more about the large corporations because of their influence on Congress and the economy but big corporations can't carry America and can't make it run.

Anyway, the heated discussion eventually veered towards Wal Mart. I am no fan of Wal Mart for a number of reasons. So much of what they sell is from China, much of their product is junk, and for the most part, the customer service sucks. Anyway, the two students argued that Walton family makes a killing off the backs of workers making low wages. For the most part it's true.

Generally Wal Mart pays around $8/hour. How much skill is needed to earn that hourly wage? Aren't wages based in part in part on skill? Availability of workers for those jobs? What kind of skill does it take to be a cashier or stock shelves? And isn't there an overabundance of unskilled people available to work those jobs? I would imagine wages would be lower in areas where there's an abundance of workers and a low or no skills required for those jobs.

If Wal Mart were to increase it's starting wage to say $12 per hour and offer health insurance to all employees, what would that do to its sales? Would Wal Mart then be able to offer the "lowest prices" as they claim? Wal Mart offers such low prices probably in part through keeping its costs down and pushing local and smaller competition out of the market. If Wal Mart had to increase their costs, would they not have to increase their prices? And if so, would the people who are normally able to afford to shop there now, be able to afford the price increases? If these people could no longer afford to shop there,  would business (especially in areas suffering economic hardships) slow and result in layoffs or store closings? Yes, it's possible.

I am not saying Wal Mart should or shouldn't do anything, I'm just saying there's more here than meets the eye. Is the Walton family making a killing? Yes. Should Wal Mart employees receive higher wages? Full benefits? I don't know. I'm not an economist but I have enough sense to know that when a company's cost rises so do its prices.

It's called capitalism and it isn't perfect but it's better than the alternative.

1 comment:

  1. Anonymous10/26/2011

    Scandanavian countries provide many benefits to their citizens (more socialistic) and have a much higher standard of living than the US. With one in every five children living in poverty in the US, how is capitalism benefiting the population at the bottome of the econmic ladder. The billionaires at the top are squeezing the life blood out of this country, not helping it or creating more jobs!