Small Businesses Are Not the Backbone of the Economy
There is an economic trope in political rhetoric that “small businesses are the backbone of the economy.” It’s not true.
The columns in this chart are the share of various components of business activity attributed to small, medium and large firms. Small businesses were generously defined as those with revenues under $10,000,000. Large firms were defined as those with revenues of $250,000,000 or more.
As seen in the chart, the vast majority of businesses — 97.2% — had revenues under $10,000,000. However, they hold a small fraction of the assets, earn a small fraction of the revenues, purchase a small fraction of the goods, pay a small fraction of the salaries and wages, and pay a small fraction of the income tax.
There is no basis for suggesting that small businesses are the backbone of the economy. That is not the same as saying they ought not be the backbone of the economy. But, the rhetoric should match the facts. If politicians actually want small businesses to hold a more prominent place in economic activity, then they will have to devise policies that favour such a development. Of course, that is quite unlikely and politicians will continue to offer rhetoric supportive of small businesses while implementing policies favourable for the biggest firms.