IFCPP Research Paper

Bryce Sisak, Jude Yovichin, Nicholas Beoglos, Shanny Rose

IFCPP Group Research Paper

05/03/21

Kent State University

Small Business Economic Report

The Covid-19 Pandemic has had unfounded impacts on the global economy. According to the Balance, a recession was expected to hit the United States in 2020 regardless of the pandemic, but this recession has only been exacerbated by the unfounded impacts the Covid-19 pandemic has had on the world economy. Large and small businesses alike have been hit hard in the early days of the economic recession. For many businesses, the initial blow of an unforeseen and unprecedented recession was too difficult to recover from, and simply ran out of businesses amidst the recession. Compounded by this, other current economic situations have only worsened the recession for many businesses. On March 23, 2021, the Ever Given shipping container blocked the Suez Canal for 6 days, disrupting global trade. A staggering 15% of all shipping passed through the Suez Canal. Large businesses, just like the entire economy, scrambled to respond to the Covid-19 pandemic. In our research, the vast assets large businesses had available to them allowed them to respond with more, and better options than most small businesses. For instance, according to Just Capital, 14 of 15 largest businesses in the world provided paid sick leave for their employees, something that small businesses simply can not afford as they struggle to pay bills month to month. (Just Capital, 2020)

Small businesses make up ⅔ of all new jobs created in the US, according to a study released by the US Office of advocacy.

“Small businesses are the lifeblood of the U.S. economy: they create two-thirds of net new jobs and drive U.S. innovation and competitiveness. A new report shows that they account for 44 percent of U.S. economic activity. This is a significant contribution, however this overall share has declined gradually.” (Office of Advocacy, para 1, 2019)

According to Mike O’ Sullivan, a Senior Contributor at Forbes Economics, Ever Given blocked the supply of vital products, like food, water, and toilet paper. This blocking of vital supplies to the global economy only makes buyers less likely to spend money on small businesses that have been seen to mostly invest in more niche products. Our research topic mainly connects to UN Development goal #9, Industry, Innovation, and Infrastructure. Our driving question for our research paper is what is the magnitude that small businesses affect other larger businesses, and the global economy as a whole? How important are small businesses to global economies, and what advantages do they hold over large businesses? Despite large businesses overtaking many small businesses in recent times, small businesses play an important role in general stimulation of the economy, and being able to build and maintain stable, growing economies.

Small businesses are crucial in job creation in the United States. While large businesses account for a large portion of jobs created in the US, small businesses create considerably more jobs. According to Alfonso Serrano, a writer for Fundera, “small companies create 1.5 million jobs annually and account for 64% of new jobs created in the United States.” (Serrano, para 1, 2020) These new jobs considerably stimulate local and global economies. According to Jonathan Lister, a writer for the Chron, “New employment opportunities provide chances for previously unemployed or under-employed workers to increase take home pay and better their meet financial obligations” (Lister, para 2, 2018) Not only does job creation allow for better living conditions of the general populous, it also greatly stimulates the economy, allowing more products to be sold, which also allows more products to be made. According to Leister, “Hiring additional employees for your small business can achieve these effects on a small scale and increase the money circulating in the marketplace. This leads to a healthier overall local economy and allows more businesses to thrive. (Leister, para 3, 2020). Not only do small businesses considerably increase the standard of living for millions of people, it also allows other smaller businesses like themselves to thrive. This creates a sort of ecosystem in the market that allows small markets to compete with each other, while also allowing each other to thrive. This connects to UN development goal #9 because through more job creation, local industries can boom, especially in developing countries as populations seek out new job opportunities.

In addition to allowing more competition amid local markets, small businesses, and their success also serve to counterbalance the ever increasing power of big businesses. Instead of creating jobs like small businesses do, many big businesses destroy jobs. According to the Colorado Business Roundtable,

“all businesses more than one-year old, including those that are centuries old, are “net job destroyers, losing 1 million jobs net combined per year.” It turns out 100% of job growth actually comes from brand new companies in their first year of growth.” (CBR, para 3, 2014)

This clearly lines out that despite their seemingly grandiose stature, big businesses oftentimes have negative impacts on the economy. As we explored earlier, job creation is one of the most crucial and important parts of building a stable, growing economy, which is something that big business directly combats. It is in this that small businesses become more than a necessity to support stable, growing economies, contributing to development goal #9 by providing a balance in the industry, preventing monopolization and thus stagnation of developing industry.

Moving on from how small businesses aid in job creation, small businesses also provide crucial and necessary aid in the general stimulation of the economy. Again, according to Jonathan Leister, hiring more people that work at small businesses also has considerable benefits on the stimulation of the global economy. “When a high level of unemployment exists locally or nationally, economic growth suffers. Consumers save more money and devote less to spending outside of the bare minimum such as food, shelter, and servicing debt.” (Leister, para 3, 2020). This unemployment causes unforeseen effects on global economies, and is what many times leads to global recessions. According to Master Class, “most recession are caused by a complex combination of factors, including high interest rates, low consumer confidence, and stagnant wages or reduced real income in the labor market.” (MasterClass, para 4, 2020). Small businesses directly counter many of these issues, most importantly by alleviating stagnant wages, and providing consumer confidence. When markets rely on one business to carry the entire sector of an economy, instability can run rampant, especially in investors. When small businesses are allowed to take the forefront of an economy, more varied options are available not only to consumers, but to investors as well. This allows for economic freedoms, and greater stability in global economies.

As the covid-19 pandemic continues to ravage global economies, small businesses have soared above that of big businesses with their ability to adapt quickly and efficiently to the struggles brought on by the pandemic. In their nature, large businesses are slower to adapt to new situations because of their large employee count, and the area in which those employees work. Small businesses, on the other hand, are much more capable of adapting quickly to changing situations due to their often lower employee count. According to the CBR, “98% of those startups [Small businesses] won’t have more than 19 employees” (CBR, para 3, 2014). This low employee count allows small businesses to implement and try new strategies to adapt to global situations. For example, a local bookstore in Capitol Hill, D.C. adapted to the pandemic creatively and efficiently. “They began taking appointments for groups of customers of four or less. ‘When they come to the store … They have the store to themselves for an hour, and after the hour we charge them for whatever books they buy.’” (Rivera, alt e, para 9, 2020). This adaptability allows small businesses to achieve a notable edge over their competitors, mainly inn their ability to adapt to situations. Anthony Chaine, a writer for the Medium explains that

“Companies that relied in the past on size and longevity are no longer shielded from newer startups that are scalable, fast-moving, and use smart, modern systems that allow them to gain a competitive edge. This is the age of billion-dollar startups, where the best and brightest companies compete at a breakneck speed. Today, the fastest win, as long as the organization keeps speed, efficiency, and innovation as a core foundation.” (Chaine, para 4, 2019).

According to Chaine, business today is dominated by those who can quickly and efficiently adapt to their competition, which small businesses provide. It is in this aspect that small business remains crucial to the global economy. Without small business, many advancements in how business is managed and run simply wouldn’t be possible, as larger businesses would be all too willing to stay stuck in their ways, and would choose not to adapt with modern innovation. This sentiment directly connects with UN Development goal #9 innovation, as companies are forced to out innovate each other for the betterment of the consumer/industry as a whole.

Despite the many negative things large businesses bring to global economies, they still serve as a crucially important sector to the global economy. Without large business, small businesses simply couldn’t thrive in markets. According to Countrystudies.US,

“Large businesses are important to the overall economy because they tend to have more financial resources than small firms to conduct research and develop new goods. And they generally offer more varied job opportunities and greater job stability, higher wages, and better health and retirement benefits. (CSUS, para 23)

Large businesses provide stability for their workers, stability that can’t be offered by smaller businesses. Although we stated before that small business provided greater stability in the overall market, by providing more choices and fail safes for investors, large businesses can act like beacons in an economy that can sometimes be unstable. Many times, large businesses can be described as “Too Big to Fail.” According to investopedia, this term does not literally mean a company can’t fail on its own. Instead, the term “describes a business sector deemed to be so deeply ingrained in a financial system that .. the government will consider bailing out the business or even an entire sector.” (Young, para 1, 2020). The most recent example of this in action was in October, 2008, where “Congress passed the Emergency Economic Stabilization Act … which authorized the government to purchase distressed assets to stabilize the financial system. (Young, para 2, 2020). This stabilization from government intervention played a crucial role in calming economic instability at the height of the 2008 stock market recession. While small businesses play important roles in today’s global economy, the importance of larger businesses still simply can not be ignored, and thus we make our concessions.

To conclude, small businesses undoubtedly contribute a considerable amount to local and global economies. Job creation not only gives jobs to locals, but also supplies the workforce needed by larger businesses. In addition to this, small businesses take up a considerable portion of the United States economy, and play a crucial role in preventing large corporations from monopolizing certain markets. Despite this, larger businesses do play important roles in the economy as well. To answer our research question, small businesses serve as the leading contributors to global economies, but also couldn’t contribute what they contribute today without larger businesses. Both large and small businesses alike rely on each other to continue to build stable, growing industries. All of these factors relate back to UN Development goal #9,, where small and large businesses alike strive to build infrastructure, innovate their sectors, and build their industries up. Small businesses play an undoubtedly important role in our everyday lives. Without small businesses, large corporations would simply become too powerful, and with that eventual monopolization of every aspect of every economy by a single, mega company.

Word Count: 1960

WORKS CITED:

Advocacy, Office of. “Small Businesses Generate 44 Percent of U.S. Economic Activity.” SBA's Office of Advocacy, 30 Jan. 2019, advocacy.sba.gov/2019/01/30/small-businesses-generate-44-percent-of-u-s-economic-activity/#:~:text=WASHINGTON%2C%20D.C.%20%E2%80%93%20Small%20businesses%20are,percent%20of%20U.S.%20economic%20activity.

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Rivera, Josh, et al. “Necessity and Inventions: How These Entrepreneurs Are Adapting to a Pandemic.” USA Today, Gannett Satellite Information Network, 31 Mar. 2020, www.usatoday.com/story/money/usaandmain/2020/03/27/coronavirus-small-business-adapting/2910230001/.

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