Back to the Basics: Business for Good
The chatter going around is that American entrepreneurship is in trouble because it isn’t scaling. But small is proving to be beautiful, flexible, nimble, and dynamic. Solo and micro enterprises have a clear competitive advantage. They might just be the inflection point for getting the U.S. economy back in the balance and back to basics: business for good, that is, responsible and sustainable.
The small business sector boasts a wide array of enterprises, ranging from sole proprietor and micro businesses with 5 or less employees to businesses with up to 500, 1,000 or 1,500 employees, depending on the industry. According to SBA, there are an estimated 28 million small businesses in the U.S. (compared to 18,500 large companies); more than 22 million are individually operated. According to the Association for Enterprise Opportunity (AEO), micro businesses represent a staggering 92% of all U.S. businesses.
The history of business in America is a history of small business. In The Land of Enterprise, Benjamin C. Waterhouse argues that our country was founded on the search for wealth and prosperity as much as it was on the desire for freedom. The first colonial settlers were pioneers who overcame hardships while joint-stock companies were used as instruments of colonization. The pioneer became the homestead farmer in search of prosperous community.
As the population and cities grew, small merchants, independent craftsmen and self-reliant professionals personalized business. Over time, they shifted to a more formalized structure based on specialization. Industrialization and new forms of transportation and communication led to the spread of the corporate legal form and a focus on the ability to attract investors. This led to a consequent recognition from the federal government of the need to promote enterprise as a way to serve the public interest.
As business got bigger, so did the debate over concentrated wealth and corporate power, which continues into heated discussions today. However, contrary to our present corporate leaders, the American businessmen and women of the 1800s and up to the 1970s believed that boosting their city and community spirit showed good business sense. Business was understood to be a community builder, so everything benefiting the community was understood to benefit the business. In pursuit of this shared personal and public prosperity, business took a leadership role in effecting public improvement.
Community was king, and business was a booster and discoverer of opportunities contributing to the Common Good. But as Americans fell in love with bigness, the bottom line for business became distorted. Economists like John Kenneth Galbraith warned against the evolving blindness to social problems and weakening civic engagement. As the rise of the conglomerate redefined successful business as big, businesses forgot the virtues of smallness, which increased public distrust in the will of corporations to act in the best interests of society. This led to a change in government regulation.
Initially concerned with economic stability, government regulation was refocused on economic regulation and on protecting people from business. The reaction from big business was to start lobbying to effect influence on the government's agenda. As big business increased its role in political financing, it increasingly focused its lobbying and financing efforts in benefit of corporate interests and stock valuation to the detriment of the needs of small firms, who cannot afford lobbyists to defend their interests and put what really matters for small business on the national agenda.
Too many large corporations have turned into political beasts in a system that largely rewards lobbying over innovation. They see the government as a source of profits and assistance, using political outcomes as leverage for defining the issues and priorities on the government’s agenda. The consequent (re)distribution of government resources mirrors that leverage.
Despite the impressive work done by Congress on behalf of particular industries and communities, the sum total of their targeted support has not translated into policy that is good for the economy or for a majority of businesses, particularly small business. Nevertheless, small businesses are the ones leading the change required for achieving real, inclusive and sustainable economic development.
Big business may involve huge transactions and doing big things, but the social value it procures is small in comparison; it is mostly an afterthought to delivering on shareholder interests. Small business generates shared value by doing big little things that deliver huge social value; small is beautiful because it builds on the two things that define America’s business DNA: trust and social capital.
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