Does America's prosperity now depend on entrepreneurs and the small businesses they create, as President Reagan said last week?
There is no question that small businesses are the most dynamic contributors to the job market in America.
Over the past three years, big business -- the companies on Fortune magazine's list of 500 leading industrial corporations -- actually lost some 3 million jobs in total employment, according to business consultant Peter Drucker.
Businesses less than 10 years old added at least 750,000 new jobs, Drucker said.
But the president spoke of prosperity, not just job creation. One way to think about prosperity is to look at gains in productivity: if companies and their employers are becoming more productive, then their earnings can grow in real terms, even after allowing for inflation.
It turns out that the productivity of small companies is slightly greater than large ones: The average employe in a small company generated $97,000 in sales in 1983, compared with $92,000 for the Fortune 500 company.
The problem is that the country's productivity record has been poor, except for a recent pickup, and Americans aren't prospering very much right now. The income of an average family, adjusted for inflation, rose steadily during the 1950s and 1960s but hit a peak in 1973. That 1973 income level stands today. After allowing for inflation, the average family isn't any better off now than in 1973, the Urban Institute reports.
If that situation is to improve in the years ahead, it will take, among other things, steady gains in productivity.
Will small, entrepreneurial companies lead the way? Possibly, but most of these companies provide services rather than manufacture goods, and economists believe that service companies have a harder time boosting productivity than manufacturing companies do.