Saturday, June 30, 2012

Why are liberals so romantic about small business?

There is a protest today in Los Angeles against the construction of a new Wal-mart in Chinatown.  The store would be part of a mixed use development near a transit station on a lot that has sat vacant for some time.

I am no fan of Wal-mart.  Among other things, I wish that those who attempt to bring a class action suit against Wal-mart pay discrimination had prevailed in the Supreme Court case of Wal-mart vs Dukes.   Nevertheless, it also concerns me that Los Angeles has had essentially no job growth in two decades, and that urban redevelopment is very difficult to do here.  According to the leading scholar on the economics of Wal-mart, Emek Besker, Wal-mart creates more jobs than it destroys (BTW, I don't think Emek is a particular fan of Wal-mart either).  It also allows households to buy goods at low prices. On balance, I think the construction of the Wal-mart in Chinatown will be good for that particular neighborhood and the city.

One of the arguments advanced against Wal-mart is that it hurts small business.  I particularly hear this from fellow liberals, who love to extol the virtue of small business.  Yet, according to Kelly Edminston at the KC Fed, job quality is much worse at small business than large firms. The average wage at a small firm (< 100 workers)was $15.69 an hour in 2004; for large firms (>500 workers) it was $27.05. Moreover, small businesses paid 1/4 of their labor force less than $8 per hour; for large businesses it was 3 percent of their labor force.

Meanwhile, no one lobbies harder against the minimum wage than small business trade associations. The National Federation of Independent Business was also the lead plaintiff against the Affordable Care Act.  So to those liberals who extol small business: what's the deal?


Nathan TNKUS said...
This comment has been removed by the author.
Nathan Tankus said...

localism is a fetish deeply rooted in American politics. I also think that many liberals mistake something being local for something being accountable.

John Elias said...

The wage comparison is poor. There are significant differences in the industries where small businesses and large entities dominate. Look at the sheer amount of low-paying retail and food service in small business as compared to the more industrial operations that are typically run by larger corporations. Their workforces are fundamentally different. Joe's Cafe hires different employees than PG&E or IBM and they are paid differently for good reason.

But I do follow the rest. I can safely say that I've never seen the problems that are common with small employers at a larger company. That's not to say things don't happen, but in my experience there tends to be a lot more accountability for management's actions in larger businesses. And wages do tend to be better even for comparable occupations.

I imagine the reverence is mostly politics.

fausto412 said...

speaking for myself. in the 1990's Kmart wanted to open a store the east side of Harlem, new york city. businesses fought it because they said it would run them out of business. years later Kmart is there with huge crowds and the small businesses are gone. that changed that co9mmunity and they were right.

prairie2 said...

The worst problem with the Big Boxing of America is that puts all of the wealth in the hands of a very few people. When you do that, they also have all the power. Political, economic and the power to shape society itself.
You may think that you are a capitalist because you own some stock in a 401(k), but the value of that investment could go to zero tomorrow and there's nothing you could do about it. Small businessmen and farmers own wealth that they can stand on, wealth that can't evaporate in the market. Reagan and his followers have taken most of it away already. You will see the last Big Box store built when the last small business is gone. Good luck with what follows that.

jadtbfcass said...

The blog Mayo's Observations said it better, but I will repeat it here, that it's not just Liberals with a thing for small businesses. Conservatives like them too. It's just romanticism, usually. It's also a social thing for middle class people, because the middle class are owners or friends of owners of small businesses.

The dynamic, however, changes a bit when you're looking at "ethnic enclaves" or these immigrant communities. These small businesses are often the only way an immigrant with limited facility in English can have a job that isn't a very low-wage job. These people function as leaders of the community, and are important in the political vitality of the community. It's also a way that money is recycled back into the community to provide services back to the community.

Ward on Words said...

Another key question to consider: why are you so romantic about WalMart?

"Yet, according to Kelly Edminston at the KC Fed, job quality is much worse at small business than large firms. The average wage at a small firm (< 100 workers)was $15.69 an hour in 2004; for large firms (>500 workers) it was $27.05. Moreover, small businesses paid 1/4 of their labor force less than $8 per hour; for large businesses it was 3 percent of their labor force."

Okay, so large companies are great to work for - but what about WalMart?

WalMart is one of the largest employers on the planet, and its profits have been very, very good to the Walton family. But the company doesn't pay anything near $27.05 an hour for wages - and it often does not provide benefits to those who work there.

According to, WalMart hourly wages range from $7.35 (for cashiers) to $14.92 (for certified pharmacy techs.) (SOURCE:

Seems that though very, very big, WalMart's wages are very small.

So again, why the romance with WalMart?

Anonymous said...

Do people who criticize Walmart for low wages and lack of benefits care that small business seldom provide benefits, and frequently provide low wages?

It's anecdotal, I know, but in college I worked as a bicycle mechanic. The "local" shop with about 30 employees paid me $7.50 per hour without benefits, the corporate shop with hundreds of employees paid me $12 per hour with one week paid sick leave and two weeks paid vacation.

prairie2 said...

small business is constantly squeezed by big business that can controls the wholesale prices small business pays to make them subsidize big business. Google the article - The Colonel can sell cheaper if the chickens also pay the bills.

Soccer Dad said...

all those statistics comparing small vs large - are they really apples to apples (eg, do large firms do the same things, do they have the same mix, how does a few highlypaid ceos distort avg values)
it is true that historically small biz has been the boehner/Hruska (1) backbone of conservatism, but right now is worse ?
i would argue that today, the main problem is theoverwhelming power of the wealthy, as represneted bywalmart (2)
The awfulness of walmart is well documented - one particularly egregious evil is that after you punch out you arerequired to help, for as long as it takes, any customer that meets you between the timeclock and the door; clealry illegal

large stores encourage car travel, an inhernet evil; small stores at least have somehope of foot travel

1) hruska - senator from nebraska; famous for saying that mediocre people deserve represnetation
2) there is some foundation with an orwellian name, stand for children or something like that, that advocates against senority rules for teachers; they are funded byGates Walmart Koch etc
regardless of how good their ideas are, this foundation represnets, in a literal sense, fascism: the money of Gates, Walmarts heirs etc lets them bypass the democratic process, at least here in the state of MA

ps: this comment form is to small and is really hard to use and because it is not on the same page as the blog post it is extra work for your readers, and the captcha is to hard

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Anonymous said...

Here are a few more of my experiences working for various small businesses: at one place I had paychecks bounce, at another the owners stole tips, at both overtime was unpaid and mandatory, and at both there were egregious OSHA violations.

Walmart is an easy target to hate because it's big and pretty bad, but there are many small businesses where pay and working conditions are worse. That doesn't excuse Walmarts failings, but it does make me share Prof. Green's bemusement re: the liberal fetishization of small businesses.

prairie2 said...

if a small business mistreats you, there is recourse, and you can quit. Walmart will never treat you well, there is no recourse, and no where else to go.

acg said...

Nice post Richard. I agree with you. I actually kind of like WalMart.

The classic chain argument applies here - lower average quality but also lower variance than small businesses.

But for name brand goods (e.g., shampoo, cosmetics, etc...), I would welcome the chance to shop at Walmart.

prairie2 said...

You need to realize that all of the pro-Walmart posts are generated by paid trolls who post these totally disingenuous comments. Rightwing think tanks funded by billionaires run boiler room operations to call into talk shows and post comments to articles and blogs.

Anonymous said...

@prairie2: I can tell you've never lived paycheck to paycheck before. It's easy to say "just quit your job" but much harder to continue paying rent when you can't afford to save any money. If you know of any jobs trolling message boards on behalf of right-wing think-tanks, I'd love to send in my CV.

I think the root of the problem is that unequal power relationships at least allow, but probably encourage abuse by the more powerful actor, whether Walmart or a small business. That's why I support a guaranteed minimum income (not wage) in this country paid for by a tax on the wealthiest citizens. PS I'm a socialist so you don't need to point out that it's "income redistribution," I already know.

Unknown said...

I read your whole post its wonderful post about liberals so romantic about small business and in this post very nicely describe Supreme Court case of Wal-mart vs Dukes, minimum wage than small business trade associations.
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Unknown said...

If employers have to pay the increase they will exert downward pressure on wages over that time so they don’t feel as pain through higher staffing costs.
I’m sorry but business opposed the introduction of the 9% super in the first place but the sky didn’t fall in. Wages growth was slower for quite a while after it’s introduction.
The fact is that retirement incomes need to be paid for - Govt pensions paid through taxes; super paid individually through wages trade offs.
Plus there are other benefits to super as well such as a big pool of capital that can be invested.
Plus higher retirement incomes is a good thing for small businesses as the population ages as people will have more short term personal loans to apply and money to spend.