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Single Person Businesses Should Count
July 5, 2007 | Anita Campbell
Why is it that the nearly 20 million self-employed individuals in this country are more-or-less ignored when it comes time to count economic activity?
Case in point: a paper by the Federal Reserve Bank of Kansas looks at the trend of economic development organizations no longer focusing on luring large corporations into regions, as they once did. Instead they are now concentrating on growing existing small businesses inside their region.
So, what’s wrong with that? Nothing. It’s an approach that makes eminent sense.
The paper goes to some lengths to “debunk” certain positive beliefs about the impact of small businesses on the economy. It suggests that small business is not all it’s cracked up to be (one example: jobs at big companies pay better, it says).
I won’t debate all the paper’s conclusions, because some of them I actually agree with. You can’t be Pollyannish and think that everything about small businesses is rosy.
However, I do take issue with one point in the paper. It’s the fact that the paper barely pays attention to the impact of nearly 20 million self-employed businesses.
The problem with most measures of economic impact is that they focus on “job” creation. Apparently, if you aren’t creating a job, you are not contributing.
Never mind that for the the self-employed (who run nearly 20 million businesses) that business IS their job.
If you are tabulating employment numbers, it makes little sense to me to count employment only when it is in the form of a job that employs third parties, and not count it when it applies to the the job of the business owner himself or herself. Cities, states and local regions should be concerned with how many people make their livelihood there, not whether their employment technically meets the definition of a “job” because they are employed by someone else.
And there is another reason to pay attention to single-person businesses. When you don’t pay attention to single-person businesses it is easy to overlook one element of economic activity: single-person businesses often hire on a contract basis other small businesses. Just about every single-person business that I know hires some contractors. It’s not uncommon for a single-person business to have 5 or 10 other small businesses providing services and products.
So when economic development professionals design programs and policies, they should be taking into account the impact on self-employment (i.e., on single-person businesses) as much as on traditional “jobs.” Otherwise, you are not capturing the rich ecosystem in most regions.
See: The Role of Small and Large Businesses in Economic Development (PDF).
Comments
5 Comments so far
another thing that’s probably being missed is the tons of money changing hands between people who have a business relationship but NOT employment. Those who write for me - I give them money for their writing - but they are NOT my employees. this is one example….and other money that changes hands but is not reported or counted by the govt.
Really was not aware that your small businesses made no count in economic activity. How sad for the 20 million self-employed businesses. This was great reading and a great eye-opener. Thanks!
[…] Single Person Businesses Should Count | Selling to Small Businesses Why is it that the nearly 20 million self-employed individuals in this country are more-or-less ignored when it comes time to count economic activity? (tags: policy economy) […]
Ramon, I agree with you that there are many out there with business relationships in place but not actual employment. This article brings up a good point - and one that is being overlooked. And frankly, I don’t understand why.
I have another way of looking at the 20M+ small businesses not accounted for.
Maybe we want to keep it that way, if we yell too much and make ourselves too visible then you know the government will want to come ‘help’ and usually that means more cost, more regulation and so on.
Maybe being ignored is a good thing!