Small Business Critique Stikes Again

Scott Shane is at it again.  Shane is a professor of entrepreneurship at Case Western Reserve.  He is well respected in academic circles, but as of late has taken up the cause of dismissing the importance of small business in our economy.

Interestingly, he was chosen as one of the bloggers for the New York Times new on-line small business site called You're the Boss, where they say that he "writes about the economy from a small business perspective."

Here is what Professor Shane had to say about small business in an article at CNN Money:

From a societal point of view, if you have a group of people who do something that makes them happier but less productive (which the data support), and you aggregate that, then entrepreneurship is an economic drain. If the goal of the policymaker is to make everybody in your country happy, then let everybody start businesses.

But most policymakers seek to create jobs and promote growth. If that's your goal, you want to stop all these people from starting marginal businesses that don't go anywhere and devote the resources to encouraging high-growth companies. In terms of tax policy, for example, you could argue that the government should eliminate the home-office tax deduction - which doesn't differentiate between high- and low-performing businesses - and beef up R&D tax credits.

This does not sound like a voice of support for small business to me.  Not surprisingly, these and similar comments from him of late have created quite a buzz.

One of his favorite arguments is based on looking at various measures of rates of entrepreneurial and small business activity rather than absolute numbers and their true economic impact.  Here is a quote from his latest post at the New York Times blog.

Most Americans would like to believe that this country is getting more entrepreneurial over time. While I wish this were true, the data don't agree. Policy makers need to take a look at these data and acknowledge the pattern. More important, they need to understand why the rate of entrepreneurship is declining over time.

As I explain in greater detail in my book, "Illusions of Entrepreneurship" (Yale University Press, 2008), one reason is what one might call the Wal-Mart effect. Large, efficient companies are able to out-compete small start-ups, replacing the independent businesses in many markets. Multiply across the entire economy the effect of a Wal-Mart replacing the independent restaurant, grocery store, clothing store, florist, etc., in a town, and you can see how we end up with a downward trend in entrepreneurship over time.

No, Professor Shane, measures of actual entrepreneurship are not declining and it is still a vital force in the economy.  And if we don't turn loose small businesses, the recession will last even longer than it might otherwise.

It is clear that you are one of those who would love to steer and shape the economy from a policy viewpoint.  Please, just keep your hands off our economy and let free markets work!