From our Nation’s founding, entrepreneurs, small business owners and small farmers have provided dynamic growth and innovation, creating a flourishing middle class. They have supplied cities and small towns with new products, processes and jobs. The Council on Competitiveness in a 2007 report said the United States leads all major industrial economies in the percent of the adult population engaged in entrepreneurial activity.

Small business owners are often not given the proper respect by politicians for their importance to society. Historically, the concept of small business has been given volumes of lip service but, because of its diversity both in product and location, the proprietors have no incentive to coalesce around a single lobbying organization and, hence, employ a scattergun approach to congressional liaison and, essentially, remain without effective means to establish or influence any meaningful political agenda.

Grand openings of large business are many times more advantageous to people standing for election. They are immediate and big news stories. To an elected official looking for votes in the next election, a press conference announcing many new jobs can be highly beneficial; as far as having an impact on the economy, it is fleeting.

Small business ownership is most times not glamorous. It is about working long hours every day, taking punches and getting back on your feet. It is about producing goods and services and creating jobs without large tax breaks, employee training money or fanfare. Entrepreneurs and small business owners are truly Jefferson’s 21st Century yeoman farmers.

Small business generates nearly one-half of the U.S. gross domestic product and employs 53 percent of all private-sector jobs. In fact, small business start-ups produced 100 percent of the net new jobs created between 1980 and 2005, according to the Small Business Administration (SBA).

Young, fast-growing firms create many of these new job opportunities. Massachusetts Institute of Technology (MIT) researcher David Birch calls these firms gazelles. Austrian economist Joseph Schumpeter would have called them wild spirits. Gazelles are companies that grow revenues at a rate of 20 percent for four years in a row. These businesses require hub airports, easy access to universities and colleges to upgrade skills, an attractive environment (good place to live), and a culture open to new ideas and differences in people. They are the job creators.

In The Spotlight

According to the SBA, entrepreneurs and small businesses are responsible for 55 percent of new and innovative products. They pay 44 percent of the private payroll, are located, for the most part, in smaller communities, and 52 percent are home-based. Small businesses are responsible for more than 30 percent of the value of goods and services exported by the United States.

When the Industrial Revolution took hold, small businesses found their advantage in the niches. They were very strong in services and retail. Now that we have entered the third wave economy (a knowledge-based, information-driven economy dominated by centrally managed transnational firms and networks of dispersed entrepreneurs and small business operators), small businesses have gained a foothold in specialized manufacturing. Entrepreneurs are constantly looking for innovative ways to enter the market and exploit an opportunity with value-added products and creative new processes.

In this century, entrepreneurs and small business owners will lead the way for middle class wealth creation and job formation raising all boats by the rising tide of prosperity. However, the competitive pressure placed on small business by larger corporations, coupled with the formation of mega banking institutions, has left many smaller businesses and banks at a severe disadvantage and with a loss of net worth.

The large financial institutions have damaged the fiscal landscape across the United States and around the globe by engaging in creative but risky financial derivative schemes valued today at some $600 trillion traded in a marginally regulated market, as cited in a New York Times article in September 2011.

These schemes have raided the American taxpayers and American and global investors. They have endangered the global economy, entrepreneurs and the communities that rely on the jobs provided by small enterprises. Some might say they have reckless disregard for the future of our Republic itself.

Alvin and Heidi Toffler perceptively pointed the following out in 1993: “Today’s financial system is…extremely vulnerable because it is in the process of restructuring itself to service a fast globalizing…economy. In liberalizing flows of capital across national divisions, myopic politicians and financial leaders have dismantled many of the fail-safe devices and brakes that once might have limited the effects of a serious collapse to a single nation.”

It is time to follow the advice of President Ronald Reagan, who insisted, “We trust but verify.”

When President Reagan said that, he was protecting United States nuclear security interests. Today, however, defending America’s security interests in our financial markets is arguably as critical. America’s reputation as the world’s preeminent economy is a valuable national asset that all Americans have invested in and own.

As investors and citizens, we have a right and a need to evaluate and assess the risk in any potential investment or economic public policy proposal. We have a right to expect that the integrity of the capital markets and their reputations will be respected and protected, not squandered. Our future depends on it.

The international economic system depends on a base of risk-taking small business operators working cooperatively with large business, and this cooperation has been compromised.

The United States system of commerce is a unique creation of our own invention and it has largely become the global economic structure. It is our duty and in our self-interest to see that it is reworked, has integrity and remains the standard for the world.

The 20th Century was an American century—it has our large imprint on it and it gives us an enormous benefit. The global economic and political institutions are of our designs and they are weighted to the advantage of democracies and free market economies.

The security and well-being of our country depends on the leadership, perseverance and ingenuity of small business to set the new economic course. It is they who will protect and preserve our way of life.

The entrepreneurial sector of the American economy is, by its nature, not made up of followers. It is comprised of leaders. As General Douglas McArthur once said, “A true leader has the confidence to stand alone, the courage to make tough decisions, and the compassion to listen to the needs of others.”

The entrepreneurial class is made up of people like Steve Jobs, founder of Apple, who followed his passion to create and… “Put a ding in the universe.” Our country needs people to lead now who think it is important to “put a ding in the universe.” Let Washington, D.C. follow.

Market forces—not political forces—drive the American economy 98 percent of the time. It is obvious that many of our elected officials need leadership from us. They do not have a monopoly on the high ground of good ideas that are common in the everyday life in our communities.

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James Wilfong
About The Author James Wilfong
James Wilfong is Chairman of Innovative Applied Science. He also is an international business practitioner, educator, Veterans business advocate, public servant, and a member of VET-Force and the President’s Task-force on Veteran’s Business Development.




Talkback (22)

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  • Guest (James Wilfong)

    In reply to: Guest (Philip Denino) Permalink

    Philip, You have asked a very good question and it is one I have been chasing down SBA, Census and DOL. I should have an answer soon. I did not want to mix oranges and apples. The 2 stats are correct but your question adds statistical complications. To be continued...

  • Guest (James Wilfong)

    In reply to: James Wilfong Permalink

    Philip,
    I have an answer for you. I posed the question that you asked to an SBA Advocacy economist and here is his reply,"From my perspective , "Small businesses accounted for all job growth in a 25 year period, 52% of which were based out of the home?" would be accurate but misleading. The two statements are accurate but it seems to infer that home-based businesses accounted for 52% of the net job growth. Unfortunately, I am not aware of a data set that tracks the job growth of home-based businesses."

    I also found some other interesting information about home-based businesses: Home-based businesses that are employers represent 24% of the home-based figure and 70% of home-based businesses are in the construction trades. It is my understanding that the SBA uses the information collected from the US Census and the IRS.

    I think your final point about economic development policy and home-based businesses is very relevant and timely. I think politicians, especially at the state and local level, should be reviewing state and local regulation to encourage this type of development and remove or modify those rules that inhibit such growth. Thank you for your patience and comments. Jim

  • Guest (David Brochu)

    Permalink

    Well Written, Jim. I concur. I hasten to add that because so few politicians have ever built any thing, they seldom understand what small business really need. Grand gestures like tax incentives and low cost loans may grab headlines, something near and dear to any politico's heart, they are not nearly as helpful as simply clearing a path.

    Small business start as micro business. Neither have the resources nor time to deal with the avalanche of regulatory hurdles and obstacles that must be survived and paid for before one customer can be served. Government fails to understand that every new bill or ruling extracts its pound of flesh from the ecnomy. Study any industry that is failing for reasons other than obsolescence and you find as one of its root causes overly burdensome regulation and taxation.

    We must return some Freedom to our Free Markets or we shall lose them.

  • Guest (James Wilfong)

    In reply to: David Brochu Permalink

    David, It is tough for almost anyone to understand the difficulties of owning and managing a small business. You have to live it and most politicians have not lived the life of a small business owner. They are living the life most of the founders envisioned. Getting re-elected. As for regulations, I have been fortunate to own businesses that were not tightly regulated. You are right, regulations can make it very difficult to "boot-strap" a start-up. On the question of free markets, that is a big and great subject for an upcoming column. Stay tuned. Thank you very much for your comments.

  • Guest (Tanya)

    Permalink

    I read that the Administrator for the SBA has resigned. With your philosophical outlook and deep understanding of the small business and entrepreneurism, which is in line with the President's policies, it would be good to see you as the next Administrator.

  • Guest (James Wilfong)

    In reply to: Tanya Permalink

    Thank you for your generous comments.

  • Guest (ed marsh)

    Permalink

    Stratfor offers a broader perspective on the "crisis of the middle class." (http://www.stratfor.com/weekly/crisis-middle-class-and-american-power)

    Perhaps the greatest opportunity small biz offers is the ability to balance lifestyle priorities. (OK, for those who have started businesses I know balance is anathema....) I believe it's the best opportunity people have to generate middle class income, possibly allow one spouse to work less, and afford flexibility to live life as one wishes.

  • Guest (James Wilfong)

    In reply to: ed marsh Permalink

    Ed,
    Thank you very much for your comments. I think they are right on point. A middle class life is not just about money. It is about having a nice family life, being a good spouse and parent, being a good citizen and neighbor. I tell my high school students that entrepreneurship is about following your passion. Not just about money. It takes a lifetime to build financial equity. Along the way we have to live. Aristotle had it right 2500 years ago, "The state comes into being for the sake of life but exists for the sake of the good life. ' Some might call this Aristotelean idea the "pursuit of happiness". Thanks again for your insight.

  • Guest (Jeff Sterling)

    Permalink

    Jim, I concur. Entrepreneurship is the national economic engine that drives the middle class expansion. Our nation’s history leaves no doubt on the role small businesses played for individuals to exercise their pursuit of happiness through the freedom of property rights and the unhindered ability to take the risk of failure for the chance of success. The collective national activity of entrepreneurship is also the life blood for the U.S. economy to continually reinvent itself. To always be the world leader in new ideas for goods and services rest in our ability to sustain the market freedom of entrepreneurship. The opportunity for an individual regardless of national origin or an occupation such as a young veteran returning from service to take the entrepreneurial challenge is our nation’s comparative advantage. Not as an export product, but as an import force to attract anybody in the world to the U.S. in order to test their mettle and ideas in our capitalistic free market. As goes the freedom to pursue one’s business dream so goes our country.

  • Guest (James Wilfong)

    Permalink

    Very well said Jeff. I don't think I can add a thing to your comment. Thank you for participating in the conversation.

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