From Phill's Desk

First a bit of context: Since the beginning of the GFC there has been a resurgence of interest in the importance of small business to OECD economies.  It was fed by a healthy distrust that developed of big business due to the GFC — the public believed that big banks created the problem while big corporations protected themselves by laying off workers and hunkered down until things improved. 

Small business didn’t have the option of hibernating, however. Those that didn’t have the  management abilities or financial capacity to cope with a downturn had to close their doors, but the evidence indicates the closure rate small businesses due to bankruptcy increases only marginally in hard times — and most small business struggle through. 

What that means is jobs are preserved in small businesses. (They account for 60 to 70 per cent of jobs in most OECD countries). For many OECD governments trying to protect their economies (and themselves) small business emerged as a way to rebuild trust with the public and attempt to restart their economies. 

So in the last few years, governments around the OECD have been implementing policies targeting small business, pumping dollars into programs that assist with developing capacity, turning innovation into commercial reality and promoting start-ups.

The good news is, it is working.  People are starting small businesses, they are generating their own incomes and they are employing.  The economic turnaround emerging now in the US is being led by small business. Even looking longer term you can see their impact: The US Bureau of Labor Statistics states 90 per cent of all net job creation from 1996-2007 came from small businesses.

The bad news is big corporations hate this success.  Corporations can see their special relationship with governments being eroded by a reality they never wanted to be realised — that they don't create jobs. That’s a role that is now being done remarkably well by small firms that have none of the lobbying clout of big corporations. The success of small business as job creator has exposed large business as a group of very squeaky wheels but of limited impact.

Why does this matter? As Clinton famously said: it’s the economy, stupid.  But what has changed about that statement is a decline in trust among the public that corporations will look after them and protect them — much the same way that the Japanese recession of the early 1990s exposed the fragility of the job for life promise. Today it is not the macro economy that people care about, it’s their own economy: having a job, earning a fair day’s income for a fair day’s work and keeping a job for long enough to allow for longer term financial decisions. They are finding that certainty in small business not big.

If corporations lose one of the reasons government like them — and regulate for them and listen to them and treat them to special favours — i.e. the creation of jobs, then corporations will feel threatened and will start to push back.

Here is a prediction, this article in The Economist will be the first of many to "remind" decision makers of the importance of corporations and that their dalliance with small business has been nice but that everything will return to "normal" once the GFC is history.

But since the GFC was created in part due to the cosy relationship between government and big business, this should never happen again. The way to deter it from reoccurring is to ensure that governments focus on policies that favour small business and remind them  why they should not go back to the policies of the past.