Effects of Small Business on the US Economy | MyPaperHub

The effects of Small Business on the US Economy and the challenges of Sustainability




Whereas large corporations are being perceived as faceless representations of corporate efficiency, the small businesses in the United States of America represents the dignified American values of hard work as well as autonomy. It is without any doubt that small businesses are the drivers of the United States economy as they account for about 75% of all the jobs in this country (Kelly & McGowen, 2012). There are about 37 million small firms that are doing business in the United States. The spirit of entrepreneurship among the small firm owners in the United States is strong, hence making them to be the engine of the U.S. economy. There are a lot of factors that can elaborate the contribution that the small businesses have had in the development of the country’s economy. However, over the past few years, different stakeholders have argued that the discussions of the federal policy do not prioritize these businesses (Wessner & Wolff, 2012). The aim of this paper is to show the relationship that exists between small businesses and the United States economic development.


Definition: Slesnick (2009) defines a small business as an enterprise or company that has at most 500 employees. According to the United States Small Business Administration, small firms correspond to 99% of all employer businesses.


Creation of Job Opportunities: the role of the small businesses in the economy can be manifested by the recognition of this group as the economy-driver by the federal government. According to the Bureau of Labor Statistics, over the past one year, the economy has increased about 1,000,000 jobs, and this is credited to the expansion of small businesses. In fact Epstein & Buhovac (2014) states that “the Labor Department figure has understated the input that small businesses have made in terms of employment (p.56).” According to Manu (2010), in the year 2013, the government provided small business administration with $16 billion loan guarantees so as to help them to operate efficiently as well as grow. The increment in loan guarantees is evidence for the government’s faith in this sector in relation to boosting of the economy. The Department of the Treasury has of late implemented a number of crucial programs so as to spur the accessibility to credit by the small businesses.


At least 90% of the firms located in the U.S. employ less than twenty workers, whereas large firms, with at least a work force of 500, constitutes approximately 0.3% of all businesses (Krueger & Gibbs, 2007). The high employment capacity of small firms implies that they are the major drivers of both the GDP as well as the economic engine. In the United States, the crucial drivers of the growth and thriving of the economy are innovation, investment, and also financial risk taking. A big portion of this arises from small firms.


Increased Innovation: Much of the improvement of technology in the country is boosted by the small businesses. Small businesses enhance innovation so as to get their niche in the international economy. According to Epstein& Buhovac (2014), “the enhancement in innovation is attributed to the fact that small business owners are gallant thinkers, risk takers, and is very patriotic to their nation (p.76).” The U.S capitalistic economy has also impacted the world economy by means of promoting innovation and competition, two elements that are responsible for producing goods that improve progressively and are also cheaper. This is because companies are investing a lot of funds in producing innovative products so as to ease the way they carry out their activities are. Therefore, this has improved the way American businesses and citizens through the enhancement of efficiency.


Innovation changes how people live in many ways (Longenecker et al., 2011). There are many small business entrepreneurs whose innovations have positively impacted the business world. One of these entrepreneurs is a duo, Sayre Swarztrauber along with Doron Shafrir, the founders of New York’s Quadlogic Controls Corporation. These entrepreneurs took an idea that they mutually shared in assisting the environment as well as consumers to survive the economic downtown. In the year 2009, these entrepreneurs started a business that produced energy tracking products which enabled different tenants in the building to manage to pay for their individual service usage. These entrepreneurs commenced in researching on the problem of energy theft since this was an issue that was growing. Therefore, they developed a new product which would avoid the breaching of the utility metering systems. This company has delivered precise and sophisticated meters as well as dependable metering systems to both individuals and businesses. This innovation by the two entrepreneurs made a significant impact in terms of tracking and re-inventing the utility usage by individuals and businesses. This innovation has assisted the United States society in stopping the theft of service usage by tenants, which thus translates to utilities costs that are much lower. Quadlogic meters have also been installed all over the world in commercial as well as residential buildings in countries such as United States, Jamaica, Israel, and Colombia.


Economic Growth: economic development concerns the improvement of the factors of productive ability of a country’s economy which include; land, technology, capital, as well as labor. Through the use of its resources and financial might in the reduction of risks and expenditures that could forbid investment, the public sector is  perceived as being accountable for establishing the arena for employment-generating activities that are carried out by the private sector (Wessner & Wolff, 2012).


In the United States, small businesses make a significant contribute to the economy by facilitating growth along with innovation to the society in which the company is set up. Small firms as well assist in the stimulation of economic growth by offering job opportunities to individuals who would not otherwise be employed by big companies. Small businesses are imperative to a flourishing local economy. Local economies thrive or weaken in relation to the success or failure of small enterprises. Small businesses are inclined to attract skills or talents who make invention of new products or apply new solutions for ideas on hand. The large corporations also regularly gain from small firms which are within the same locality, as they depend on small businesses for the carrying out various business activities through outsourcing. Small businesses can be referred to as the backbone of the United States economy. For instance, in Oregon, there are more than 40,000 small businesses that help the economy to be healthy. They provide work for 60 percent of the private sector labor force.


The growth and thriving of small firms drives the economy of California. The tremendous contribution is attributable to the fact that they help in generating a big portion of the economic activities of the State. As a result, the State collects a lot of money from them in terms of sales tax revenue or taxes on their returns.


Future Growth: Even small firms have goals of expanding and growing into large companies. Most of the big companies such as Nike were once small firms that eventually grew to become major players in the international market. Most of the small businesses have the potential for growth in the future. Microsoft Inc. is the epitome of the way small business ideas may have the potential to change the world. Most of them remain in the society after growing into large corporations. A flourishing local business in the United States will earn more revenue and also pay high business taxes, which are then used to develop the economy. As a result, the community benefits from job opportunities as well as stimulation of the local economy.


Improved Living Standards: the standard of living refers the amount of wealth, comfort, as well as fabric goods that are available to a particular socioeconomic class, found in a specific geographic area. The determination of the standard of living is through an assessment of factors such as income, class disparity, the poverty rate, quality as well as affordability of housing, the inflation rate, and many more. In the United States, small businesses have been a significant reason behind the growing middle class U.S. citizens as well as a reduction in the poverty rate. The improvement in living standard is due to the provision of job opportunities to many Americans along with growth in investments.


Earnings of Foreign Exchange- During the year 2007, there were about 259,400 small firms whose export sales amounted to $311.7 billion in products in the international market, which was 30% of the total State’s revenue from exports. There has been an increase in small exporting firms in the last few years which translate into an increase in revenue for the federal government. Small firms have renewed the spotlight on export-driven economy growth. U.S. exports bring in the much-required economic growth as well as net job creation. Wessner & Wolff (2012) finds out that 10.9 million job opportunities were sustained by the exports in the year 2009.


Serving Large Businesses- Small firms are resourceful to large corporations in the United States as they help them in management of their operations. There are a good number of the small that act as distributors or goods or contractors of service for other big corporations. In fact, many leaders in the business world outsource most of their products to smaller businesses. For instance, Liz Claiborne, which is a leading enterprise in the fashion industry, does not have its factories. It makes all its pieces of clothing through contracting outside suppliers. The economy develops as a result of the tremendous contribution that is made by small firms.


Small Businesses Act as an Adhesive that Connects Capitalism with Ethics. Capitalism refers to the situation where the whole economy of the country is in the control of the private sector. A capitalistic economic system if based on the idea of free enterprise.  In this economic structure, the government is only mandated with the role of providing a legal framework that is safe from fear or fraud. Businesses and individuals have a distinct benefit under the capitalist economic structure than under socialistic economic system for various reasons (Longenecker et al., 2011).


Small businesses incorporate the moral as well as economic values that are essential in making capitalism function in a way that is socially accountable in the contemporary society.  The owners of small businesses form the foundation of their home communities.  Most of them uphold a high degree of business ethics while providing goods and services to their clients. There is an increase in competition among firms to produce the cheapest and finest product with the aim of economic survival. This benefits American citizens as they are offered with products that are affordable and also of good quality. It also facilitates the division of labor, which allows individual workers to specialize in the job that they can do best. In addition, there is reduced government interference in this economic structure requires that governments have a minimal approach towards interference with businesses as well as regulating them (Kelly & McGowen, 2012). In contrast, in socialistic economic structure, money is taken by the government for distribution; hence, there is little motivation for companies to improve economically since no matter the level of hard work employed, the result is still the same. The companies in this economic structure are held hostage by the government rules as well as bureaucratic red tapes.


The challenges of Sustainability


Krueger & Gibbs (2007) defines sustainable development as the progress that can meet the current wants or requirements without compromising the capacity of future generation as well to meet their needs. Meeting fundamental wants relies in part on attaining optimal growth potential, and sustainable development evidently calls for economic growth in areas where such desires are not being met.  It is worth noting that sustainable development is a different concept from sustainable growth.


There are a number of challenges face the current business environment in terms of sustainability, which is required to steer in the fast-changing world. Efforts for sustainability should be well-incorporated in the corporate fabric of the increasing number of small firms. Therefore, firms have a critical responsibility to play. The implementation of sustainability measures in a small firm is a difficult one but not an impossible one. A small-scale company or business can attain sustainability in its transactions so as to drive cost cutbacks, innovation as well as enhanced economic performance. Understanding of the main challenges of sustainability that are facing the U.S. small businesses is significant in unlocking strategies to revitalizing the American economy. These challenges include the following:


Climate change: it is indisputable that the United States economy was damaged by the climate change, particularly in the year 2012. In the year 2012, unfavorable climate hurt the United States economy in an adverse way. The famine that took place in the Midwest was approximated to have cut off up to a full percentage point from the U.S. domestic GDP in that year (Kelly & McGowen, 2012). Considering the constant slow growth that has been experienced in the United States since 2008, this implies that climate change is a real concern for the "real" American economy.


The United States small businesses, which accounts for at least 60 million job opportunities to the American citizens are particularly exposed to a higher risk due to the unfavorable climatic conditions and steps should be taken to make them adapt to this situation (Kelly & McGowen, 2012). The most-affected industries by unfavorable climate change are agriculture, retail, tourism, as well as small-scale manufacturing sectors, as they are highly vulnerable to financial repercussions of climate change in comparison to their large business counterpart. Most small businesses lack the access to the amount of capital that is necessary to shield them from suffering long-term economic harm in the case of a single severe weather occurrence such as flooding.


Short-range Thinking Chokes Innovation: most small firms in the United States do not effectively plan in the long-term, a factor which inhibits innovation in their area of business. They run their firms based on the short-term description of success. As a result, the long-term good of a business to the future generations is chocked. There is, therefore, need to address this issue so as to ensure that the United States economy has a favorable prospect for the coming generations.


Oil and Energy Shortage: With the prospects of future shortage in the production of oil, which is the primary source of energy to small-scale businesses and industries, there is an urgent need for other sustainable sources of energy. The continuing decline in oil negatively affects the U.S. economy as it is going to make the doing of business more difficult in the future. Scarcity in oil and energy is one of the main sustainability issues that is affecting the small firms, which are the back-bone of the economy (Epstein & Buhovac, 2014).


Lack of Adequate Investment in Innovation and Infrastructure: many small firms in the United States do not adequately invest in innovative products as well as infrastructure. Slesnick (2009) asserts that the lack of innovation inhibits most of these firms from maintaining competitiveness in the modern market where change is inevitable. Therefore, small business owners should spare upfront investment costs in innovation that will enhance their competitiveness with other large corporations. As a result, they will grow and expand their operations, which is healthy for the growth of the U.S. economy.


In conclusion, small businesses make a significant contribution in the economy of the United States. Whereas small firms might not generate much money like the large corporations, they form an element of the local economies. They present new job opportunities as well as serve as the elements of the big corporations in the U.S. Given the significance of small businesses in driving the U.S. economy; efforts should be made to promote them, facilitate their accessibility to finance, offer them with just chances and assist them in overcoming regulatory restrictions. In light of the above contribution of small firms on the United States economy, the government should, therefore, strive to make sure that they can access the resources that they require so as to grow and expand. Adequate support from the relevant bodies or authorities is significant in assisting small firms to succeed and flourish in the dynamic US economy.  Provision of an appropriate climate for the growth and success of entrepreneurial firms can be tremendously priceless.  

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