Economic growth is important for cities, states, and
nations. Research by Donald, et. al. (2009) helps decision-makers understand
that a healthy balance between large and small business development puts
economies on the right track to flourish while encouraging positive budget
balances. Their study shows that the activity of business start ups foster
growth not only in one state but also the surrounding states. Some businesses
will succeed and others will fail but the economic activity of constant start
ups is a revenue generator.
The U.S. Small Business Administration reports small
business activity is one of the major engines to economic growth and creates a
majority of new jobs. It is possible that smaller businesses that are entrepreneurial
by nature engage in research and development that have an even larger impact on
the economy (Acs and Plummer, 2005). Both jobs and innovation are needed to
keep the economic engine running at ideal speeds.
There are a number of economic indicators of small
business activity. States often focus on gross state product (GSP), state
personal income (SPI) and total state employment levels. Much of the
information is drawn from the Census or Bureau of Economic Analysis. These hard
facts often ignore the rates of new business birth and death within a state. Yet
it is this birth and death process that keeps momentum.
Small business growth contributes heavily to
economic growth. There is a lag in the start of business and its overall
contribution to the economy (Holtz-Eakin & Kao, 2003). It takes time to
move from a start-up stage to a more sustainable stage where a successful
process can compete on the market. When a number of businesses move into a
sustainable stage they contribute to hiring, wealth, and product development.
The environment is often a predictor of where small
businesses will start. Entrepreneurs like places where an educated workforce exists
(Lee et. al. 2004). Those who are investing their money want to connect up to
those with the skill and knowledge to compete. Universities often act as hubs
to entrepreneurial growth under the right conditions and a loosening of bureaucracy
can make ideas more possible.
The results on small business for macro economic
growth are mixed depending on which metrics one uses. However, by looking at
birth and death rates the authors found that small business growth has a large
impact on state economic growth. That growth also helps raise other states
within their proximity. It is important to have increasing growth of business
start-ups to raise tax revenue and positive economic output. The author argues
that states who attempt to foster small business start-ups is a factor even more
important than raising tax rates or implementing rules to create growth.
Comment:
The author did move into the concept of large firm and small firm growth. It
appears that large firms provide a level of stability but higher levels of
economic growth can be found in the constant starting of small businesses. Even
when some small businesses die off in the first few years the entrepreneurial spirit
raises its head again to start another business with new knowledge. Policy
makers should be focused on ensuring that there is an appropriate balance of large
and small business development and the environment to help encourage this higher
economic activity. States in close
proximity also receive benefit in economic activity and should encourage each
other to create larger synergy.
Ace, Z. & Plummer, L. (2005). Penetrating the
knowledge filter in regional economics. Annals
of regional Science, 39
Bruce, Et. Al. (2009). Business activity and state
economic growth: does size matter? Regional
Studies, 43 (2).
Holtz-Eakin, D. & Kao, C. (2003). Entrepreneurship and Economic Growth: the
proof is in the productivity. Working Paper No. 50. Center for Policy
Research, Syracuse University, Syracuse, NY.
Lee, et. al. (2004). Creativity and entrepreneurship:
a regional analysis of new firm formation. Regional
Studies, 38.
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