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Why is Small Business in America Dying?

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Why is Small Business in America Dying

A lot of people are saying small business is dying in America. An article on Brookings charted data from the U.S. census of the bureau, which tells us:

  • 1978 had a ~14% firm entrance rate and a ~11% firm exit rate
  • 2011 had an ~8% firm entrance rate and a ~9.5% firm exit rate

In short, the U.S. is now losing more businesses than its creating. This trend developed slowly over three to four decades.

The question is why? Here are the most common theories that explain why the U.S. isn’t creating as many small businesses:

1. Big companies are taking up the market

It’s simple math. If Starbucks opens 1,000 new stores, it means mom and pop cafes will have to suffer. Markets are limited. If customers are going to big companies then small businesses are losing customers.

Big companies also tend to hog the best talent in the industry. Put yourself in these worker’s shoes. Would you rather work for a 10-employee tech company? Or take a 6-figure salary at Google?

Also, large companies absorb smaller ones and set them up as subsidiaries. The bigger they become the less small businesses there are.

2. Healthcare costs

The cost of healthcare is astronomical. Not only do entrepreneurs have to pay for their own health insurance, but they also have to pay for employee benefits.

Large companies have an advantage in this regard since healthcare becomes cheaper when you purchase it in bulk.

3. Technology costs

Technology is imperative to streamline production and scale business. Unfortunately, it’s usually expensive to acquire and properly implement. It’s not cheap to develop an online presence and big business usually scoops up the talent.

There’s also automation, which saves tons of time and money for businesses, but it’s so expensive that only bigger businesses can afford it. If a customer wants self-checkout, chances are they will go to Wal-Mart or Lowe’s before a small business.

4. Our systems are not small business friendly

Some point out that small businesses are held to similar regulations as giant companies. Small businesses must pay income taxes, sales taxes, unemployment taxes, payroll taxes, and more. They are not equipped to handle these regulations and are punished by the IRS.

Others point out that the U.S. government does not provide a lot of assistance to help jump-start small businesses. Some have called for lower taxes on small businesses or for government funds to help them.

5. Can’t get funding

Starting a business costs a lot of money and it’s a huge risk. Consequently, the loans that are readily available to entrepreneurs have high-interest rates and quick payback terms. This crushes small businesses early in their development when they need money the most.

Another problem is that professional investors heavily favor mature companies that have a proven track record of growth. The capital available for business tends to go to larger companies rather than small businesses.

6. Student debt

Young adults have a student debt problem. Many of them are exiting college with several loans that will take years to pay off. On top of this, many are saving up to buy houses. Therefore, they view starting a small business as unwise at best.

A lot of entrepreneurs rely on a personal savings account to cushion the costs of launching a business. But few have the finances to pull that off.

Unfortunately, many would-be-entrepreneurs are crippled from launching a small business.

The decline of small business may not be bad

Some experts posit that the decline of small businesses is not necessarily a bad thing. We just have to look at it the right way.

With the dawn of the internet, a lot of business is now conducted online. This gave rise to the gig economy, a workforce that is difficult to measure. Since remote work is becoming easier, companies hire freelance writers, web designers, remote secretaries, temporary bookkeepers, and more.

Factors like this are hard to calculate when analyzing the overall health of the American economy. In other words, the decline of small businesses may be a natural development in a technological economy.

What do you think is causing small businesses to decline?

2 Comments

2 Comments

  • joemaster says:

    Why Capitalist is failing is because Americans voted for Socialism.

  • sean ryan says:

    “Capitalism” and “socialism” are not necessarily opposing ideologies/forces.
    There are wealth-hoarding “capitalists” in many (if not most) “socialist” and “communist” countries.
    “Socialist” Russia has a wealth-hoarding billionaire class.
    “Communist” China has a wealth-hoarding billionaire class.
    “Socialist” Vietnam has a wealth-hoarding billionaire class.
    “Socialist” North Korea has a wealth-hoarding billionaire class.

    What is a common denominator of all these countries, and what do they have in common with the U.S.?
    Those wealth-hoarding billionaires use their massive hoards of wealth to influence & control politics and governance, effectively producing special-interest public policies designed to benefit them solely.

    Yes, Americans have continually voted for “socialism”, regardless whether they vote “Dem” or “GOP”.
    Both (most all) political parties are controlled by the same CARTEL of Elite.
    The corporations that exist as the largest political campaign contributors to Politicians of the “Right” are largely owned by the same CARTEL of largest Big Asset Management firms & Big Banks that similarly own the corporations that exist as the largest political campaign contributors to Politicians of the “Left”.

    Americans have been given no real choice.
    The same CARTEL of Elite that have existed as the largest profiteers of the ACA have also existed as the largest profiteers of private detention facilities, that work in coordination with the CBP.

    Don’t believe it?
    Do a tad bit of research and see the largest shareholders of the largest private detention companies, like the Geo Group (NYSE: GEO), and/or CoreCivic, Inc. (NYSE: CXW), et al.
    You’ll see the same CARTEL of largest Big Asset Management firms & Big Banks, like:
    Vanguard, BlackRock, State Street, Fidelity, Invesco, JP Morgan, etc.

    The U.S. (and much of the world) is seeing some of the greatest concentrations of wealth in modern history.
    In fact, the same CARTEL of largest Big Asset Management firms & Big Banks now exist as the largest shareholders/owners of the largest “competing” corporations, in most every single industry.
    Any semblance of true Free Market activity have been obliterated.

    Even the “Father of Free Markets”, Adam Smith (1723-1790), warned of the consequences of vast accumulations of capital.
    He witnessed these consequences of the capitalist” economy of Britain, another government & economy that was hijacked by a small CARTEL of Elite.

    Capital, by the very nature of “value”, must exist in limited quantities/scarcity (as anything existing in great abundance maintains virtually no value).
    Following the Law of Scarcity, the more of that thing that just a few people have & hoard, the less that is available to more people.
    And economies are reliant on more people spending more.
    Thus the more that a few have & hoard, and the less available to more people, the less total is spent.
    Resulting in reduced economic activity & growth.

    Adam Smith realized that unfettered “capitalism” (the increased hoarding of capital by a few) was one of the biggest enemies of a true Free Market.

    People need to stop haphazardly throwing around terms like “capitalism”, “socialism”, and such.

    There are many different types and ideologies of “socialism”, including:

    Anarchist, Christian democrati,c Communist, Conservative, Democratic, Environmentalist, Fascist, Fundamentalist, Globalist, Green, Internationalist, Liberal, Libertarian, Nationalist, Populist, Progressive, Regionalist, Republican, Social democratic, Socialist, Syncretic,
    Elite party, Cartel party, Catch-all party, Entrepreneurial party, Mass party, Ruling party, Opposition party, Official party status, Single-issue party, and so on.

    But one of the main tenets of most forms of “socialism” is central planning.
    And this CARTEL of largest Big Asset Management firms & Big Banks (aka wealth hoarding “capitalists”) now exist as the largest central planners of the U.S. (and global) economy.
    The Federal Reserve, which is largely owned by this CARTEL, is the primary authority & tool used for central planning activities (via setting interest rates, controlling employment rates, determining money supply, and other such activities).

    You can have “socialism” for the wealthy “capitalist” billionaires.
    The U.S. is once such example of this type of socialism.
    As are Russia, China, Vietnam, North Korea, etc.

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