When Government Favors Big Business over Small Enterprise

 As we approach the end of 2025, a Bloomberg report highlights a widening prosperity gap between small and large businesses in the U. S. While small enterprises are struggling, larger corporations continue to report substantial profits and stock growth. This trend marks the reversion to historical norms where large companies have consistently outpaced small businesses in growth and importance within the U. S. economy.

1. Economic Dynamics:

• Small businesses haven't been shrinking in absolute numbers but are growing at a slower pace compared to larger firms.

• The share of small businesses in the U. S. economy has been in relative decline for over sixty years, with smaller businesses holding a reduced role in employment and production.

2. Historical Context:

• In the nineteenth century, most Americans worked for themselves in small agricultural or service enterprises.

• The rise of larger industries began in the late nineteenth century, leading to a growing dominance of bigger corporations in the economy.

3. Market vs. Government Influence:

• The decline in small business prominence can be attributed to both market dynamics and government interventions.

• Large firms often serve consumers better in specific sectors, but government policies can unfairly favor them over small businesses.

4. Decline of Self-Employment:

• The number of self-employed individuals dropped significantly over the decades, with the rise of large enterprises aided by advancements in technology and infrastructure contributing to the relative decline of small businesses.

• For instance, large farms have increased in size while the total number of farms has decreased over the years.

5. Small Business Statistics:

• Small businesses account for over 99% of all firms but employ only 46% of private-sector employees and generate just 39% of total receipts.

• Trends show a continued decline in small business shares of GDP and total business receipts, despite some rebounds during certain decades.

6. Pandemic Effects:

• The COVID-19 pandemic initially raised hopes that small businesses would regain strength; however, an increase in inflation has further strained their recovery.

7. Challenges Faced by Small Businesses:

• Small businesses are often more fragile during economic downturns and challenging regulatory environments due to limited access to capital.

• They account for a substantial number of new job creations, but they can also result in many job losses, showing their vulnerability.

8. Advantages of Large Enterprises:

• Larger companies can benefit from economies of scale, better access to capital, and a more extended longevity than smaller firms, which often struggle to survive when owners retire.

9. Government Policies:

• Certain government regulations and inflation can disproportionately burden small businesses while benefiting larger enterprises.

• Exemptions for small businesses often discourage their growth beyond certain thresholds, thereby limiting competition.

10. Impact of Tariffs and Regulations:

• Tariffs tend to increase costs for imports that small businesses often rely on, putting them at a disadvantage compared to larger firms better equipped to absorb these expenses.

11. Monetary Policies:

• Inflation and easy monetary policies may lead to greater market consolidation, where smaller firms are acquired, reducing competition.

• Federal spending and subsidies often favor larger businesses, as they receive the majority of federal contracts.

12. Bailouts and Central Bank Policies:

• The "too-big-to-fail" philosophy results in larger businesses receiving significant government support, contrary to their small counterparts.

The historical pattern indicates that small businesses, while still a vital part of the economy, have faced relentless challenges from both market dynamics and government policies. As larger corporations continue to dominate, small enterprises struggle with job stability and financial health. Ongoing inflation and the economic landscape point to a return to long-standing trends, emphasizing the need for a reevaluation of current policies to ensure fair competition and support for small businesses.

https://mises.org/mises-wire/when-government-favors-big-business-over-small-enterprise