Today’s Economist: Nancy Folbre: Small vs. Big, Local vs. Global

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

Small looks beautiful for business these days. Big companies rake in higher profits but win far less affection from most Americans. The business community is increasingly divided, largely because economic trends are driving a growing wedge between the interests of small locally owned companies and large global corporations.

Today’s Economist

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Scientific measures of public attitudes toward business are hard to come by. But a survey conducted in 2010 by the Pew Research Center for the People survey found that 71 percent of Americans believed small business was a positive influence on the way things are going in the country, far higher than the 25 percent who believed the same of large corporations.

Indeed, small businesses enjoyed higher positive influence ratings than either churches and religious organizations (at 63 percent) or colleges and universities (at 61 percent), not to mention the federal government — which is tied with large corporations at 25 percent.

Small wonder that Republicans want to claim the small business mantle for their own. Senator Ted Cruz of Texas, a Tea Party enthusiast, insists that calling Republicans the party of big business is the “biggest lie in politics.”

But small business itself is obscured by many little lies. The Small Business Administration’s Office of Advocacy focuses on independent businesses with fewer than 500 employees, but official definitions vary by industry. Industry lobbyists hoping to sink their teeth into the favorable loans and contracts targeted to small business create pressure to revise size limits upward.

Large banks often categorize companies with annual revenue of under $20 million as “small.” But the most recent available Economic Census data (for 2007) suggest that threshold is misleading. About 89 percent of all companies with employees brought in less than $2.5 million. Companies operated only by their owners represented about three-quarters of all companies in that year; they are not included in most Census reports because their total revenues are so small.

In other words, the companies winning the popularity contest are not necessarily those fitting the official definitions.

Most Americans praising small business are probably thinking in qualitative rather than quantitative terms. Small is beautiful because it’s local. Size matters less than connections and commitment.

We think of small business owners as men and women who invest in their own communities, work in the same building as their employees, send their children to the same schools and walk their dogs in the same neighborhood parks.

Much of the political pressure to pass the proposed Market Fairness Act, which would require Internet companies to collect state sales taxes, comes from stories of very small businesses driven out of business by competition with very large companies — like Amazon’s effect on independent bookstores. But size is not the fundamental issue. Some online commerce taking place, for instance, through eBay, is small in scale. It seems unfair to many that nonlocal companies should enjoy a tax advantage over local ones.

Tensions between local and global enterprises now pervade discussions of corporate strategies for managing “stateless income.” Local businesses don’t have the will or the way to establish offshore tax havens. Indeed, many are hurt by reductions in state and federal tax revenue that have led to cuts in spending on infrastructure and education.

Large corporations are increasingly footloose, able to go wherever advantageous tax policies, cheap labor or lax regulation beckon. Locally owned businesses are far less likely to hit the road.

The resulting divergence in economic interests is driving new political alignments. As David Hess explains in his fascinating book, “Localist Movements in a Global Economy,” most business organizations, including the U.S. Chamber of Commerce, have been dominated by large publicly traded corporations. That dominance is now being challenged by groups like the American Independent Business Alliance, which explicitly aims to “keep economic and political power rooted in the community” and the Business Alliance for Local Living Economies, which emphasizes social and environmental responsibility through “localism.”

In a recent article in The Nation, William Greider describes the American Sustainable Business Council, the Main Street Alliance and the Small Business Majority, all efforts to strengthen progressive coalitions around issues like health care and immigration reform.

Public Citizen’s U.S. Chamber Watch lists nearly 60 local Chambers of Commerce that have publicly denounced or canceled their membership in the U.S. Chamber, citing disagreement with the national organization’s political positions on issues ranging from corporate tax reform to minimum wage increases.

These are not the small businesses that Senator Cruz wants to embrace, and they don’t want to hug him, either. If this insurgency grows, Republicans will have a harder time defending the claim that they represent Main Street rather than Wall Street.

Article source: http://economix.blogs.nytimes.com/2013/05/06/small-vs-big-local-vs-global/?partner=rss&emc=rss