Small business romance.(research of small business )

Veronique de Rugy, "Are Small Businesses the Engine of Growth?" AEI Working Paper #123, 2005 (aei.org)

Presidents Reagan, Clinton and George W. Bush have all pointed to small businesses as the powerhouse of the American economy, producing the most new jobs, innovations and economic output of any sector. Yet, as AEI scholar Veronique de Rugy points out, the percentage of people who work in small businesses has remained constant for decades--a fact that doesn't square with their assertions.

In any case, it isn't their diminutive size that allows small businesses to contribute to the economy, but rather the fact that they are flexible and innovative, and tend to take risks. All of this suggests that formulating policy around "small business" needs may be unwise.

Belief that small businesses are the economy's main source of job production is the foundation of a whole raft of government policies and bureaucracy. The Small Business Administration has an annual budget of $600 million and controls lending programs amounting to $42 billion each year (2006 figures). Small businesses are also exempt from a huge number of regulations, and they receive tax subsidies and preferential treatment in government award contracts.

All this might be justifiable if small businesses really were fountainheads of new employment, but de Ruby proves this a fallacy. The claim that small businesses are "responsible for 60 to 80 percent of new jobs" stems from confusing net and gross job creation, from failing to take ...