Dickson Igwe. Photo: VINO/File

There is a small business test of economic recovery. And it is not overt construction work, and the sight of scores of frenetic workers scurrying around numerous building sites, and road works projects. That type of activity is not evidence that the GREEN SHOOTS of economic recovery are imminent, or have sprouted.

Increased infrastructure spending is a good thing in a slow economy. Spending on the national infrastructure is a time proven method of ECONOMIC STIMULUS. Infrastructure spending frequently impacts job growth, and economic growth, positively. But attempts at fiscal stimulus do not signify actual economic recovery.

For economic recovery to happen there must be evidence of specific, measurable, and timely signs of growth. Frenetic activity through public spending is not a measure of economic growth. Fiscal stimulus is successful when it impacts the economy through increasing demand leading to economic growth, evidenced by increasing business profitability, and wage and job growth. If consumer generated growth is missing, then stimulus is a failure.

OK. The green shoots “truly” begin to appear when small businesses across the board see rising profits; when there is wage and job growth across the economy; and when the working and middle class begin to feel good about their business, job, material, and social prospects.

Rising consumer and business confidence is a sure sign that the economic recovery has appeared. Jack the investor, for example, sees increasing and solid returns on his capital and financial investments as increased consumer demand raises business profitability.

Bank rates begin to rise. The demand for borrowing increases. Increased commercial borrowing is a good economic recovery measure. And banks are happy to lend to business and retail clients as the risk of default decreases owing to a more robust economy.

There is increased capital investment and capital growth once more in the economy. All of this impacts the small business positively. But rising confidence too must be measured scientifically. This is usually done by population sampling and opinion polling.

In the absence of the preceding, any type of belief that there is economic growth is simply a mirage: anecdotal.

Questions such as how has GDP growth fed social and economic development; or what is the level of public and private debt in the economy; how is unemployment affecting wage growth; how liquid is the banking and financial system; how quickly can businesses access loan finance; and how large is the annual budget deficit and the national debt.

Or, how is private debt impacting consumer demand; and how favourable is the balance of trade in relation to key trading partners; these preceding questions cannot give Jack and Jill the answers, whether their economic prospects are improving, even when the economic numbers are all on the positive side of the balance sheet.

Jack needs to “taste” prosperity for himself, not assess macroeconomic indicators presented by “experts” pointing to economic recovery.

Consumer confidence pollsters ask the right questions when they list the following in their questionnaires: How does Jack feel about his small business’ prospects; Is Jack’s small business enjoying increasing profitability; and can Jack expand his business in terms of larger premises and additional employees in the current economic climate?

Or, does Jill feel secure in her job; How does the present economic climate impact Jill’s promotion prospects; can Jack and Jill make the next 6 mortgage payments without any headache; can Jack taxpayer afford that cruise to Panama with the family in the summer; and can Jill afford to send Little Johnny to the new private school around the corner? These are the economic questions that matter to Jack and Jill.

Now, Kelly Edmiston is a Senior Economist in the US Federal reserve. Edmiston stated in a research paper titled ‘The Role of Large and Small Businesses in Economic Development’, that small businesses are the engine of economic and job growth. Small businesses are an engine of innovation and creativity in an economy. In fact, according to Edmiston small businesses generate more economic activity than the growth generated through bringing in large firms into an economy from the outside.

Important as Foreign Direct Investment is to job growth, and large corporate and multinational cultures, strong job growth only happens when small businesses begin to experience the conditions that support their creation and prosperity.

And yes, there is a symbiosis between the large corporation and the small business. Large businesses started as small concerns.

However, the small businessman and businesswoman are the platform of real economic growth under the capitalist model. Fostering an environment that is favourable for small business is excellent economic policy. That means economic policy that benefits the middle class. 

Great businesses are built from the ground up according to Edmiston. The evidence is everywhere. Microsoft and Apple began in garages in the suburbs. Coke was first created in a small kitchen. Facebook was a nerd’s social networking idea that started in a tiny one bedroom apartment.

Small businesses grow into larger businesses, and large businesses become corporations and multinationals. Of course where these businesses are situated matters. Add the political, social, and economic climates that surround them. A small business in a country with a population of 30,000 has less chance of becoming the next Apple than a small business sitting in a market with a population of over 300 million. A small business in Communist Cuba is unlikely to become a multibillion dollar multinational. A small business in Silicon Valley, much more likely.

Now, when small local businesses grow, they employ more workers who in turn spend their wages in the local economy creating greater economic activity: the mushroom or multiplier effect, frequently cited by Virgin Islands Economics Commentator Edgar Leonard. Small businesses are a crucial source of employment. Increasing employment is a generator of consumer demand leading to economic growth.

Jason Nazar writing in Forbes Magazine on September 9, 2013, described how small businesses employed half the US workforce, and since 1995 generated the majority of new jobs in the US economy. There are 28 million small businesses in the USA out of which 22 million are sole proprietors. Small businesses are indeed the engine of economic growth.

But there is an incubation process that the small business goes through at the inception. That incubation period determines the success of the small business in the long term. The best thing the policymaker does for the small business, that impacts positively both the macro and micro economy, to the benefit of every citizen and resident of a country, is ensure that Jack’s small business survives, grows, and prospers.

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