Over the past eight years or so, political rhetoric in the US has placed increasing importance on the idea of “job creation.” People, employers and pundits alike have branded certain pieces of legislation and industry trends as either job creators or job killers. Outsourcing, the increasing cost of paying American workers, disputes over healthcare, the rusting of American manufacturing—all of these set pieces frame the arguments we have about the economy.
And with all these factors at play, it’s often difficult to suss out the facts from the fear mongering and agenda setting we 21st century media consumers encounter in our news feeds every day.
So, coupling all of this with the very real (almost too real) economic situation occurring in Kansas right now got me thinking: why do people and policymakers put such emphasis on attracting big businesses to bring jobs to a place, when there are plenty of smart people with good ideas and strong vision who simply lack the capital of a larger firm?
Smokestack chasing—a great phrase to throw around at parties—is the idea that if a state—let’s again use Kansas as an example—lowers the cost of doing business, then it will attract large employers to the area, spurring job growth, economic development, healthcare, stability and all the other wonderful benefits capitalism brings into our lives.
This idea belongs to the 1950s for a variety of reasons, but chief among them is the notion that moving a business from one area of the country to another is growth. It’s not. It’s just enacting a “push” in a bigger zero-sum economic game.
Also, lowering taxes to attract businesses rigs local economies in favor of the businesses policymakers wish to attract. As this guy puts it in the most interesting article about supply-chain management I’ve ever read, such policies pick winners and losers—an idea that even the most hardcore free marketeer should oppose in his or her heart of hearts.
There are a lot of other reasons too which, frankly, exceed the scope of both this piece and my state school liberal arts education. If you’re so inclined to check my rationale, this guy did a study. It’s also quite long, so don’t say I didn’t warn you.
As it turns out, bringing companies to a state through tax incentives is much less efficient and economically viable than supporting the businesses that already exist there. Small businesses are good for communities in a number of ways. Here is a study from The Urban Conservancy published in 2009 that outlines some of the more salient points: small businesses in New Orleans recirculate money at twice the rate of big box retailers; small businesses also squeeze more profit per square foot than large retailers.
A similar study, conducted by Civic Economics in Salt Lake City in 2012, found similar results: independent businesses bring substantial benefits to local economies when compared with chain competitors. These benefits include more jobs, greater investment in commercial and residential infrastructure, and, of course, more tax revenue for the state.
There’s even an article from the Kansas City Federal Reserve which demonstrates that expanding existing firms unequivocally benefits employers, employees and the state more than recruiting new firms from other areas.
If you’re reading this, you probably support small business growth. You probably already know some of the things I’m telling you, too. But numbers provide a certainty unlike any other. At the risk of sounding like an elementary school counselor, businesses bring life, meaning, comfort and convenience to their communities—regardless of their shape or size.
Even so, this does not disqualify any firm from the responsibility it has to the community it serves. When policymakers craft incentives at the expense of that community, the reasoning for the policy and the presence of the firms it’s designed to attract becomes increasingly untenable.
So maybe try your local coffee shop instead of Starbucks. Or go to the smaller music store instead of Guitar Center. Or try local toy stores for Christmas shopping (like this one in Lawrence, Kan.) instead of Target or Walmart. Small businesses support your friends, neighbors and community.
All that being said, don’t forget to support Small Business Saturday this year on Nov. 26th!