The Myth-Busting Economist by Larry Malone

Honoring Our Small Businesses

I’ve been sad about our economy recently, and I’ve found it difficult to write. The sadness came on from the enormous respect I have for small businesses in our region. Their owners and workers have taught me much, and helped make me more aware of the challenges they face on a daily basis.

Small businesses are the backbone of the American economy, but we take them for granted and assume that large employers play a greater role in our livelihoods. Large regional enterprises like Bassett, SUNY Oneonta, Hartwick College, SUNY Cobleskill, SUNY Delhi, Springbrook, Walmart, Home Depot, Lowe’s, Corning, Price Chopper, Hannaford, UPS, and New York Central Mutual provide employment to scores of local workers. But half of all workers in the U.S. work in small businesses that employ 49 or fewer people. The public sector—including government at all levels and schools—employs another 20 percent of the national workforce, which means that less than a third of Americans work in a setting with 50 or more employees.

Small business owners possess greater courage than most of us. They face enormous challenges, and anxiety about the future is constant. Their challenges and worries have intensified this year, from no doing of their own.

Small businesses have complicated supply chains. A supply chain is all of the steps, people, products, resources, and organizations that are needed to make and deliver what a small business sells. A chiropractor needs knowledge and hands, but also treatment tables, cleansers, lotions, towels, laundry supplies, and washers and dryers. They also need scheduling, record keeping and billing. And that’s a relatively simple business…think about what a natural food store, restaurant, dry cleaner, pizzeria or deli needs to open its doors six days a week.

Small businesses have a difficult time attracting workers. Part-time workers have their own needs and schedules foremost in mind when it comes to committing to hours for work. Full-time workers prefer employment opportunities that offer health and retirement benefits, both of which are difficult to provide in a small scale business environment. More restrictive immigration policies are now affecting seasonal hiring opportunities for agricultural and construction enterprises, and few permanent residents are willing to fill those roles.

Persistent inflation is driving up the cost of inventories and other items needed by small businesses, and those costs are passed along to customers. Even the most loyal customers will respond by seeking lower prices elsewhere, and elsewhere typically means Walmart or Amazon.

The latest challenge faced by our small businesses is artificial, and has nothing to do with how free markets work. It’s the misguided policy of imposing tariffs on imported items by our president. Tariffs fail on so many levels: They are the equivalent of pouring gasoline on fire when it comes to inflation, and tariffs are paid by both small businesses and their customers. Tariffs are essentially an invisible tax paid to the federal government as an upcharge to the price of an imported item. And when tariff dollars leave our purses and wallets for Washington they do not return. On top of this invisible new tax, government services are disappearing, and that means small businesses and consumers are paying more and getting less.

The final challenge faced by small businesses has always been present, and tends to be a greater hardship in rural America. I call it inter-generational succession—when ownership sells or gifts a viable and successful small business to the next generation of ownership. If there is no child or relative willing to continue the legacy of a business, the business will often close, since new ownership cannot afford to buy it and service the debt of ownership. Locally we can think of many examples of this in the demise of farms and dozens of other businesses in our villages and towns.

Finally, much of what I learned about the challenges of creating and operating a small business came from Debbie Annutto-Dauenheimer, an innovative small-business owner who passed away this spring. With her father, Tony Annutto Jr., who also died recently, the Annutto family created a gem in our region. Staring down every day-to-day challenge, they built an unforgettable small-business experience for the customer. Rest in peace Debbie and Tony, and may we do better in easing these challenges to encourage others who might possess your remarkable courage and abilities.

Larry Malone is professor emeritus of economics at Hartwick College.