Michael Kinsley raises some good points, questioning the assumptions promoted by both presidential candidates – that small business is necessarily good and taxing small business is therefore necessarily bad:
Small businesses are businesses like any other, and small business owners are people just like others—except that they tend to be wealthier. Why should the magic words “small business” entitle them to pay lower taxes?
Then he goes after an “anthropomorphic fallacy” that underlies the common assumptions:
Big businesses are not owned by big people, and small businesses aren’t necessarily owned by small people. The typical shareholder in a big business is a worker in some other big business whose pension fund has chosen to invest in that company. Or a retiree who has bought this stock as his or her nest egg.
And doubts the validity of the claim that “small businesses at the heart of our risk-taking, job-creating culture”:
Small businesses do “create” a disproportionate number of jobs. They also “destroy” a disproportionate number—generally by going out of business. The small business sector of the economy is just inherently less stable. That’s neither bad nor good. It just is. [Daily Beast via Mankiw]
All good points, but we can’t overlook the importance of creative destruction. Success is built out of countless failures (both prior to, and surrounding successes). In a sense, it’s the willingness and ability to accomodate failure that has made the US economy the strongest in the world.
We’ve heard a lot about Joe the Plumber in the past few days; we should also be thinking of people like Bill and Dave, or Michael Dell — whose success could not have happened without the innumerable others who tried the same thing and weren’t as fortunate (or perhaps weren’t as determined). Virtually every hugely successful high-tech company started modestly as one or two people (albeit with immodest ambitions), and there are currently thousands of entrepreneurs trying to start businesses that will inevitably fail.
But a few will succeed and maybe replace massive companies like HP and Dell – some of which won’t survive the next few years because they were too big and too established in the old system to adapt to a new competitive environment, or because some ambitious startup made their business model obsolete.
Granted, high tech startups aren’t as significant to this discussion as far as taxes are concerned (by the time they start making any money at all they tend to become a big business rather quickly), but it teaches a lesson about the effective distribution and use of our most valuable resources — human energy, intelligence, talent, and time.
Nobody knows how to use one’s resources more effectively than oneself. It’s a cliche that big organizations tend to waste talent. Big organizations tend to compel us to waste time doing things we’re not very good at, while potential talents aren’t just wasted, but not cultivated at all.
Take Evan Williams as an example. He cofounded the company that developed Blogger, which was bought by Google; he was stifled in that big organization (which is relatively unstifling, as far as big organizations go) and left to cofound the company that developed Twitter. If he had been compelled to work in big business the whole time the web might have turned out a lot different — or more generally, if everyone had to work in big organizations there might never have been a web at all.
High tech just happens to be a powerful example of something that is true in all industries. Different people work in different ways. Some people are more productive and efficient in big business, others are not. Some people make their best contribution to our economy within the structured environment of a large organization, others make their best contribution when they can work autonomously.
Coming back full circle, to paraphrase Kinsley, “That’s neither bad nor good. It just is.” I’m not trying to subvert Kinsley’s critique — and I have nothing to say about taxes (yet) – I just want to make sure we don’t let our assumptions err too far the other way, to make sure we don’t forget how essential small business is to our economy.
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