I know we have talked about this ad nauseum in this blog but there is another report out today from Statistics Canada that should once again raise the flag of caution about spending 95% of our economic development time trying to ‘foster local entrepreneurship’.
Before I state the specifics, let me reiterate my position. Small local businesses play a vital role in the local community (I now own one – my little consulting practice). They fill in holes that are not covered by larger firms and they offer services that are needed in communities. But the vast vast majority of them never break out of the local community and if your goal is economic development or growth you need to have businesses that are export-oriented. If you have 10 small carpenters in a community and they service the local market and you add one more carpenter – the economic activity just gets split over 11 carpenters – no net new growth.
This report the Workplace and Employee Survey Compendium looks at wages and benefits in Canada against a variety of metrics including benefits offered. Only 8% of businesses under 19 employees offer any kind of pension program – compared to 72.5% of businesses with over 500 employees. Only six percent of the large firms offer no non-wage benefits compared to 54% among the small businesses. Take it from me – non-wage benefits matter in a person’s overall compensation.
There are other interesting facts in this report like the fact that of the surveyed companies in Atlantic Canada 90% of their business is only in the local market. Only 1.6% of the firms’ collective slaes are to the United States – and the percentage is down since 1995.
Again, I am not slamming small biz. It has its place but I get very annoyed when economic development types say things like “80% of growth is from within” or “we need to focus on our local entrepreneurs rather than try and attract industry”.
That doesn’t make sense. You attract a pulp mill and that creates the economic activity for 100 small businesses. You don’t create 100 small businesses (hair dressers, consultants, plumbers, etc.) and that leads to a new pulp mill.
Economic development is fundamentally about new business investment and good paying jobs. It’s about expanding the pie. It’s about migrating from old industries to new industries. And, again fundamentally, it’s about determining a proper role for government and the local community in this effort. We can’t engineer business investment but we can engineer some of the community-level factors that lead to the community becoming a good place for business investment.
Don’t romanticize the small business. Understand the role they play in the local economy. Also understand the role that large, anchor businesses play in setting the bar on wage rates, offering non-wage benefits and anchoring overall economic development.