Over the past two years in the United States, the number of business formations has fallen by about 3 percent per month. That recovered briefly after the devastation of lockdowns, at a time when as many as a third of small businesses shut forever, but that recovery has come to an end and we are in a period of slow decline.
You don’t need data on hand to know this. It’s not accurate in any case. How can it be? Government data collectors aren’t omniscient. Still, you see it all around you in nearly every town in the United States. Our retail lives today are so dominated by large franchises that the shopping experience anywhere in the United States is very much like that of everywhere else.
It’s actually rather dreary if you think about it. Where are the small and locally owned businesses that only a few decades ago were a feature of every town in America? The change is perhaps occurring too slowly for people to notice but it’s still very real.
I’m newly aware of this from being in Mexico City for the week and strolling through neighborhood after neighborhood. Every city block is strewn with shops of all sorts: coffee, tobacco, bars, tacos, fishmongers, chorizo grills, and small entrepreneurs are everywhere doing everything one can imagine. The place is teeming with life.
Yes, there are gigantic businesses too that are closer to the city center but, even there, there is every manner of enterprise going on from street vendors to small bars and restaurants. Everyone has something to sell. And it really lifts the spirits. The local flavor is striking. And truly thrilling!
I’m pretty sure the United States used to be this way, and not that long ago. For one thing, strict zoning laws in the United States have made quite the difference, so that there are hard lines between commercial and residential. Why anyone thought that was a good idea is beyond me. Here in Mexico City, everything is intermingled and I’ve not seen anything like the sprawling suburbs of identical cookie-cutter plywood and Sheetrock palaces that dominate in the United States.
From where I sit, everything I would ever need is a short walk away. Why isn’t that a more normal and humane way to live?
Which takes me back to the summer of 2020, when I happened to visit several small U.S. towns during the period of mandatory closures. It was such a grim scene, something I never thought I would observe in the United States. All the stores were boarded up. The charming book shops, coffee shops, small knickknack places, bike repair places, and so on—all started by locals with a dream to serve others in the community—were crushed.
Most didn’t survive. The Paycheck Protection Program offered money but it was mostly gobbled up by larger businesses and nonprofits that didn’t need the help. Small businesses faced a one-time trauma that compares only to depression and war. They were called nonessential even as their big-box competition was allowed to flourish.
Why should we care if a business is large or small? In theory, it shouldn’t matter. I’ve given many lectures over the years in defense of big business. They all start small. In a market, they grow big by serving others through excellence. To grow is a mark of success and consumer welfare. In a true market, they are nothing to regret but rather to celebrate.
All of this is in theory. In reality, matters are different. For one thing, a small business might not necessarily want to grow larger. I’ve known a barbecue place in a small town in Texas that has now three generations of the same family as owners. The grandchild of the original founder is now an adult and training his own son in work.
It’s a lifestyle and an institution.
The signage outside never improves. They never hire anyone except maybe to put a visiting cousin to work. The menu has never changed. And they do it all every day for long lines of people who adore what they do. I knew the original owner decades ago when he was in his 90s and asked him why he never expanded.
He said, simply, “We like it the way it is.”
There is nothing wrong with that!
Also, let me clue you in to how the big business racket works in America. Yes, they start small but as they grow, they have to become more comfortable with the political scam. They end up first dealing with zoning boards, then mayors, then development commissions, then bankers with tight connections. Then, they have to deal with state legislatures and then governors. As they expand, so too does their political sophistication.
Every large business in America has to play ball with the politicians, without exception, or else they will face audits, investigations, regulations, and all sorts of dirty tricks. Eventually, they have to hire lawyers and pay lobbyists, and eventually open up a D.C. office and join all sorts of associations. It simply isn’t possible to be a big business in the United States without shelling out all the bribes that are necessary to stay alive and grow.
So, yes, in a perfectly free market, there is no particular reason to favor small businesses over large ones. Being large is simply a sign of doing well by doing good. In a compromised market, the bigger the business, the tighter it must be with the powers that be. Eventually, they all end up playing the game, and it gets so bad that the distinction between public and private sectors begins to evaporate.
This is what has happened to all the large tech companies. Both Microsoft and Google started off within a general libertarian ethos of disruption and enterprise, finding a new path using new technologies to forge a freer future. They even had to be dragged into the racket of opening up lobbying offices in Washington. The antitrust suit against Microsoft was the warning shot. You will be hounded forever until you fork over and bend the knee!
So, over time, they got wise to the racket and began to play along. That’s when cynicism takes over and swamps the idealism. Google eventually got rid of its slogan “Don’t Be Evil” and scrubbed it simply because, well, they started doing evil in order to survive.
Here’s what the pure theory of free enterprise doesn’t teach: to become big in a mixed economy requires that you become supportive of regime priorities. If an exception appears out of nowhere, it’s quickly schooled to the ways of the world.
At some point, businesses themselves figure this out and race to Washington with massive amounts of dollars in hand. This is essentially the story of FTX/Alameda. Under the guise of “effective altruism,” the company developed a specialization in bribery. It worked for a time. In fact, it worked so well that the company was permitted to pillage and rob tens of billions of dollars while the Securities and Exchange Commission helpfully looked the other way!
That’s why hardly anyone in D.C. wants to talk about FTX. They all made millions from the racket. It was market forces themselves that swept in and stopped the scam. Now, Sam Bankman-Fried gets his head on a platter and we are supposed to forget everything that happened. The bribe money paid by FTX will never be paid back to the poor slobs who believed all the hype. They were robbed to pay off the special interests, particularly racketeers who claimed to be engaged in “pandemic prevention.”
Thus the point: Small business is far less likely to be corrupt than big business. So a thriving small-business sector is a sign of freedom, perhaps not in theory but certainly in reality. That Texas barbecue place is a happy business with a happy family making happy customers for generations. All power to them! They don’t need a massive franchise to be a success. They only need integrity and an enterprising spirit, something I’ve seen here in Mexico City that I miss so much in the United States today.
The past three years have been devastating for small businesses. They deserve reparations for what happened to them, but they won’t get it. That’s because it’s the big businesses that own Washington and the big businesses that use the system to crush anything and everything that stands in their way. There is nothing meritorious about that.
