“Despite the reality that the overwhelming bulk of technological innovation comes today from the organized laboratories of commercial firms, the mystique of the lonely, misunderstood, and ignored inventor, toiling away in his garage (yes, in the myth it is always a “he”), ranks with social security, the family farm, and home ownership among potent American political icons. It does not matter who you are, if you are fighting for the small inventor, you are likely to get serious hearing.”
That is from Jaffe and Lerner’s Innovation and Its Discontents , and the context is the political inability to reform the patent system. Many areas of policy policy reform seem to be negatively influenced by myths. In addition to family farms and home ownership I would add the virtue of small businesses and “mom and pop” stores. Others?
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Wednesday ~ May 19th, 2010 at 4:48 pm
Agustin
What is the mythical virtue of small businesses and “mom and pop” stores?
Wednesday ~ May 19th, 2010 at 5:43 pm
Adam Ozimek
That they’re the driver of job creation, innovation, economic growth, productivity, etc. And that they somehow deserve special subsidies and treatment by the government…
Wednesday ~ May 19th, 2010 at 8:22 pm
Agustin
This is interesting. I have always heard that most jobs are with small businesses, but I haven’t bothered to look up data on it.
Now I’ve taken a quick look through Statistic Canada’s web site and found that small businesses (I’m talking about < 50 employees in this case) employ about 95% of the work force, and produce about 23-26% of GDP, depending on the year.
I guess that explains why small businesses have so much political clout. They may not produce most of the GDP, but they certainly do produce most of the jobs.
There are also interesting stats about growth of small businesses, etc., on this web site but it would take me some time to go through it all…
[http://www.ic.gc.ca/eic/site/sbrp-rppe.nsf/eng/h_rd01252.html]
Wednesday ~ May 19th, 2010 at 9:41 pm
teageegeepea
Paging Robin Hanson…
Thursday ~ May 20th, 2010 at 12:55 pm
Chris Prottas
I’d be careful to distinguish between mom-and-pop small businesses with small, young businesses. Job growth DOES come from young, small businesses. It does not come from mom-and-pop or lifestyle small businesses. Furthermore, the regulatory and capital costs may reduce the number of small businesses below the optimal number, which would be a theoretical argument for subsidization. Of course, the public choice problems may make it unwise to subsidize, but at the very least their should be a concerted effort to reduce the burdens on new entries that disproportionately hurt young, small business creation and growth.
Growthology, as I’m sure you are aware, has a lot of content on the role of young, small businesses in job creation.
Thursday ~ May 20th, 2010 at 5:57 pm
Adam Ozimek
Chris,
I agree on most counts. But aside from the public choice problem you mention, you’ve also got to worry that the inefficiency resulting from however your raising the tax money for the subsidies would be greater than the inefficiency that the subsidies are trying to correct.
Also, whatever the economic value of small businesses, I’d wager the public notion of it is highly exaggerated, and the existing level of subsidization and regulatory carve-outs going to small businesses are already inefficiently large.
Friday ~ May 21st, 2010 at 2:19 pm
Sister Y
Marriage.
Tons of public money is spent promoting marriage, but it doesn’t improve children’s outcomes.
Monday ~ May 24th, 2010 at 3:34 pm
Adam Ozimek
I don’t know the evidence there, but if you’re right, than that is a perfect example.