Precarity, American-Style: The American Enterprise Institute and Small Businesses

This post is a continuation of my series of posts on economic precarity and the precariat.  Past posts explored the manifestation of precarity in Russia and China, two nations which returned to the capitalist fold at the end of the 20th century after abandoning free-market capitalism during the early and middle decades of the 20th century.  More recent posts have explored the spread of precarity in the United States, a nation which has been characterized from its birth by a cultural emphasis on laissez-faire, free-market capitalism and the defense of the "property rights" of those who are wealthy.  This post continues the exploration of precarity in the United States.

At the outset, I'd like to state my belief that the solution to the problem of economic precarity and rampant wealth inequality is to create a society in which the role of small businesses is central and in which private concentrations of wealth and power above a certain size are eliminated by a steeply progressive tax with no loopholes for the rich.  Such an arrangement would fulfill the ostensible goal of socialism without requiring the government to be the owner of the societal means of production.  For such an arrangement would place the means of production directly in the hands of even the poorest of people.

I can already hear the screams of rage which the emergence of such a society would produce among the leaders of the American right wing.  That's okay - sometimes people need to see their sacred cows turned into hamburger.  Yet one area in which we all seem to agree is the importance of small businesses in the American economy and the need to provide support to these businesses.  Presidents and members of Congress from both sides of the aisle have made strong and warm statements of support for small business from the days of Reagan onward.  Indeed, the Republican Party in particular has branded itself the champion of small business.  This has been part of the Republican Party's branding of itself as the party of economic growth in general and of the promotion of economic policies which guarantee prosperity for all.  (Of course, the fact that Republican policies have created many more losers than winners is blamed on the losers, but that's a story for another post.)

Can the Republican Party truthfully say that it has been and continues to be a champion of American small business?  The answer to that question can be found in the policies and activities of some of the lobbying groups and think tanks which are part of the American right wing.  Let's look at one of those groups today, namely, the American Enterprise Institute, or AEI.  According to Wikipedia, the AEI is "...  a center-right think tank based in Washington, D.C., that researches government, politics, economics, and social welfare... Founded in 1938, the organization is aligned with conservatism and neoconservatism ..."  To call them "center-right" may be quite misleading, as their membership has included several figures who are very much hard-right - figures such as Robert Bork, Newt Gingrich, John Lott, Antonin Scalia, and Dick Cheney.  In addition, the AEI is closely aligned with the Koch brothers, according to a Sourcewatch article.  Moreover, some of the recent posts and articles on the AEI website have seemed to give support to the regime of Vladimir Putin.  The AEI has become the dominant brain trust of the American right wing, "the crown jewel of the conservative policy infrastructure," according to a recent Johns Hopkins University case study.  

In 2005, the AEI published a paper titled, "Are Small Businesses the Engine of Growth?"  The abstract of that paper provides a concise summary of AEI's desired policy toward small business: 

"It is a common belief among entrepreneurs and policymakers that small businesses are

the fountainhead of job creation and the engine of economic growth. However, it has

become increasingly apparent that the conventional wisdom obscures many important

issues. It is an important consideration because many government spending programs, tax

incentives, and regulatory policies that favor the small business sector are justified by the

role of small businesses in creating jobs and is the raison d’etre of an entire government

agency: the Small Business Administration (SBA). This paper concludes that there is no

reason to base our policies on the idea that small businesses are more deserving of

government favor than big companies. And absent other inefficiencies that would hinder

small businesses performances, there is no legitimate argument for their preferential

treatment. Hence the paper suggests ending all small businesses’ subsidies." [Emphasis added.]

The paper sought to make a case for eliminating all government agencies and programs that support or incubate small businesses, both at the Federal and State levels.  It twisted a number of statistics in its attempt to make its case, attempting for instance to convince readers that the net gains in job creation  should be ignored in favor of gross job creation when analyzing the impact of small businesses during any time period of analysis.  This position, by the way, is proven false by the fact that reputable agencies such as the World Bank do count the impact of net job creation in evaluating economic performance.  For an example of the paper's mishandling of statistics, consider the part where the author tries to use gross job gains and gross job losses to "prove" that employment in the small business sector was much less stable than in large companies during the year 2000.  The author neglected to notice that during the time period in question, the net addition of jobs by small businesses was always positive, and for firms between 1 and 49 employees, exceeded 10 percent.  Lastly, I would point out the laughably false claim made by the paper that "... larger employers offer greater job security. For both new jobs and the typical existing job, job durability increases with employer size."  (That has definitely not been my experience as a working stiff and cubicle rat!  I guess the author of the paper never heard of the words "downsizing" or "redundancy"!)

The 2005 AEI paper cited above was part of a sustained effort on the part of American conservatives to make a case for eliminating all government support for small businesses.  One such example is the article, "Terminating the Small Business Administration" (2011), along with articles published from 2008 onward which suggested that government support of small businesses leads to negative economic growth.  I argue that the AEI paper, on closer examination, does not present a scientifically rigorous or accurate case.  However, it definitely does express what rich American conservatives want to do to American small businesses.  Consider the following quotes:

"... the real job growth comes not from people dreaming of being small business owners but from people committed to building big companies." [Emphasis added.]

"The paper will examine whether the pervasiveness of the belief that small businesses are the economy’s main source of job creation is warranted. Section 2 will show how this belief is the foundation for many government policies. Section 3 will expose the statistical fallacies that lead people to see job creation patterns where none exist. Besides it shouldn’t matter. Although job creation receives enormous attention in policy discussions, it is rather misplaced. The mere creation of jobs is not by itself an appropriate economic policy objective. Economic growth whether it takes the form of additional jobs or increase of productivity in existing jobs is all that matters. The paper concludes that there is no reason to base policies on the idea that small businesses are more deserving of government favor than big companies." [Emphasis added.]

In other words, the AEI has backed a policy which favors the continued growth of large companies, and the continued growth of American economic productivity even when that growth is not accompanied by the growth of jobs.  We have already seen the results of such a policy in action, namely, in the jobless "recoveries" from economic crises which occurred during the presidencies of Ronald Reagan and both Bushes.  Such "recoveries" left a lot of people out of work for a long time, while those who still had jobs were subjected to ever-increasing demands on their time from their employers in the name of increasing productivity.  To put it another way, these "jobless recoveries" resulted in ever-increasing concentrations of wealth among the richest members of society while drastically increasing economic precarity among everyone else.  It is quite telling that the AEI has pushed so hard for the elimination of all government help for small businesses even though large corporations are the biggest recipients of corporate welfare from both Federal, State and local governments.

Let us close with a couple of questions.  Does real job growth come not from people being small business owners but from people committed to building big companies?  Is it true that the only thing that matters is economic growth, regardless of whether it takes the form of additional jobs or increase in productivity in existing jobs?  I'd like to give my answer to these questions, but I don't have time today, so that will have to wait.  But as a partial answer, consider the following questions:

• How many really big companies can exist in a society whose economy is of finite size?
• Why should most people rally behind continued economic growth if the fruits of that growth are not fairly and equitably distributed?
• Who wants to volunteer to be one of the many poor, disenfranchised, and unemployed who are produced by a system in which the fruits of increased productivity are not fairly distributed?
• Who wants to volunteer to be a member of the salariat in such an economy if the only way to be a member of the salariat class is to work 80-hour weeks?