Role of SMES in the US Economy

¶ … Small Business Act of 1958 and Contribution to Small-Scale Businesses to the U.S. Economy

Small-scale businesses have been accepted globally as instruments contributing to economic growth and development. Governments in many developing countries have adopted comprehensive efforts and policies aimed at improving the performance of small-scale businesses that have fallen short of expectations. Small-scale businesses face significant challenges that hinder their abilities to contribute to optimal economic growth and national development (Entrepreneurship 321). Therefore, this essay analyzes the Small Business Act of the year 1958. This will entail analyzing the historical perspective and implications of the act on the small businesses. The second section entails the analysis of the importance of small-scale businesses to the U.S. economy. This entails analysis of whether small-scale businesses contribute to the economy of the U.S.A.

The Small Business Act of the year 1958

The U.S. government enacted the Small Business Act of the year 1958 to provide support to the small-scale businesses. The U.S. Congress took significant steps to protect and promote the prosperity of the small-scale businesses. One of these steps was according to tax relief to the small-scale businesses, promoting their growth. Secondly, the act extended the permanent status to the administration of the small scale-businesses also known as the SBA. The establishment of the small-business administration ensured a continued provision of business loans and other forms of support to the small-scale businesses. Thirdly, the act established a more satisfactory method of achieving the needs of the small-scale businesses. The satisfaction of the needs of these businesses entailed ensuring equity in the provision of capital for the provision of support to the small-scale businesses and long-term loans to promote their success as compared to the past (Nathan 78).

Factors that led to the adoption of the Small Business Act of 1958.

Adoption of an act occurs because of the presence of a perceived and identified problem that faced the public, and its effect extended to the functioning and performance of the national economy. According to Zoltan, Carlsson, and Karlsson (125), the existing institutional gaps contributed to the adoption of the Small Business Act of the year 1958. The U.S. Congress realized the difficulties the small-scale business faced, hence, the need for the act. The small-scale businesses faced numerous challenges, including inadequate long-term financial support, absence of a union to support the businesses, and lack of optimal growth and development. The financial institutions lacked the capabilities to provide long-term financial support to the small-scale businesses. The sales associated with the small-scale businesses' issues of securities entailed prohibitive costs that crippled the performance and realization of the objectives of the small-scale businesses. The inability of the private placements to provide an effective solution to these problems compounded to the challenges facing the small-scale businesses. As such, the inability of the small-scale businesses to obtain long-term financial support from the government led to the term "institutional gap," a factor that contributed to the adoption of the act (Smets and Wouters 602).

A research done by the Federal Reserve System prior to the adoption on small-scale businesses showed that, these businesses faced numerous challenges that hindered the expected population growth. As such, it identified that; the gap could be filled by developing a program that could stimulate the flow of capital invested in the private sector. The study also showed that, the existing SBA loan program failed to meet the above needs due to its limited scope of operation. The adoption of the Act was the most effective option that could help in improving the performance of the small-scale businesses. Moreover, the SBA program at that time did not consider factors such as equity in the provision of capital to the small-scale businesses. As a result, it did not contribute to the long-term growth of the small-scale businesses. These factors necessitated the adoption of a government program that had qualities such as the broad scope of functioning and flexibility to meet the needs of the small-scale businesses. In addition, most of the European Countries had encountered similar problems as the U.S. And developed specific financial programs such as sustainable financial institutions to provide support to the small-scale businesses.

The existing ample domestic environment provided the necessary support required for the establishment of a strong financial system that for supporting the small-scale businesses (Entrepreneurship 105). Therefore, this study revealed the need for the Congress to develop a program embodied in the act. As such, the Congress stated that, the key purposes of the act included supplementing and stimulating the existing privately owned sources of capital in achieving the needs of the small-scale businesses. The act also aimed at ensuring equity in the provision of long-term capital to the small-scale businesses to ensure long-term productivity and sustainability (Robbins 299). Through the Act, the U.S. aimed at ensuring optimum contribution of the small-scale businesses to the overall economic growth and development.

To ensure the success of the act, the Congress developed requirements that SBI institution should meet to provide support to the small-scale businesses. Among the rules, set included beginning the financial lending services with at least $300,000 that was to be paid in surplus and capital by the SBA. In addition, a small business authority was to license the organizations involved in the provision of long-term financial support of the small-scale businesses. Similarly, small business the act provided directions to the small-scale businesses on obtaining the financial support from the federal government. The rules included ensuring that the small business paid in capital and surplus amount to $300,000. This amount could be used to obtain financial support from private organizations and other financial related entities.

Besides, the Investment Company Act of the year 1940, Securities Act of the year 1933, and Trust Indenture Act of the year 1939 are some of the exemptions provided by the act. Cumulatively, the adoption of the Act paved way for improving the growth and development of the small-scale businesses. The improvement translated to the enhanced economic growth of the U.S. And venture infusion of transforming business knowledge and skills on small-scale businesses management. As stated by Zoltan, Carlsson, and Karlsson (201), the act not only promoted U.S. economic growth but also enhanced its competitiveness in the global business sector.

Impact of small-scale businesses on the economy of the United States of America

Small-scale businesses contribute positively to the expansion and development of the U.S. economy. While the landscape of the U.S. cities is marked with massive offices and headquarters, the ideal backbone of the U.S. economy is not due to the influence of the huge companies. Rather, the businesses/companies that have a significant impact on the economy of the U.S. are, in fact, the small-scale businesses. Therefore, while the media and the investors focus to the large businesses on the Wall Street, the small-businesses on the Main Street are playing a quiet and momentous role in driving the economy of the U.S. Its contribution to the economy of the U.S. is in terms of private or non-farm gross domestic product and employment opportunities. As such, most of the financial analysts have shifted their focus from recruiting large enterprises to ensure maximum economic growth in the U.S. To supporting the growth of the small-scale business to achieve a competitive economic growth (Smets and Wouters 599).

Small-scale businesses contribute to the growth of the U.S. economy by providing employment opportunities to most of the U.S. citizens. The difference in size in the contribution to the economic between the large and small businesses is evidenced by the tight-fisted employer rates. A report released by the SBA in the year 2008 showed that, the mean employer for the small-businesses is 10 as compared to 62 for the large businesses. Despite the differences, the small-scale businesses employ approximately 68 million workers across the U.S. while the large companies employ nearly 25.6 million American citizens. In addition, the small-scale businesses have acted as the driving force behind the provision of new job opportunities in the U.S.

For example, financial statistics show that the small-scale business sectors contribute to approximately 60 to 80% of the new jobs created in the U.S. annually. While the high rates of layoff often contribute to the scenes witnessed in the media, the small-scale companies provide job opportunities for the displaced employees by the large businesses. As such, this not only provides them with new job opportunities but also a source of introduction of new expertise, skills, experience, and technology into the small-scale businesses. Moreover, the small-scale sector contributes to a significant proportion of the gross job flows in the U.S. Therefore, this implies that, the small-sector contributes significantly to the development of the U.S. economy (Smets and Wouters 589).

The demographic evidence shows the significant contribution of the small businesses to the growth of the U.S. economy. Financial reports for the year 2010 showed that the small-scale businesses contribute to approximately 44% of the total payroll from the U.S. private sectors. The value translates to about $2.1 trillion of the $4.8 trillion of the contribution from the privately owned sector. The owners of the small-scale businesses comprise a significant and diverse group of individuals from all the religious, ethnic, and educational backgrounds (Robbins 298). For instance, it is approximated that, 10.1 million workers in the U.S. identify themselves as self-employed. In addition, small-scale businesses provide employment opportunities to a large population of the old, disabled, and educated people living in the suburban areas of the U.S. Demographic surveys also showed that most of the U.S. population considered self-employment as more beneficial than being employed in a large business. As such, many of them take actions to start their own businesses to become self-employed (Entrepreneurship 205).

The small-scale businesses are characterized by great innovation that drives the U.S. economy. According to Nathan (89), small-scale businesses are more innovative than the large-scale businesses. Strong competition among the small-scale businesses, availability of incentives, and lack of entrenched systems of bureaucracy contribute to the varying innovativeness between the two businesses. Small-scale businesses are the technological leaders in the modern business environment characterized with constantly changing market conditions. It is appreciable that, large companies have the abilities and resources to facilitate a wide range of organizational innovation. However, their innovation is mostly materialistic in nature, unlike the small-scale innovation that strengthens behavioral innovativeness. The small-scale businesses operate in highly competitive environments. The competition necessitates innovativeness to ensure competitiveness of the small-scale business in their environment. High personal rewards from the individually owned business provide the necessary motivation that ensures innovation of the goods provided to the customers. The above analysis makes it clear that, small-scale businesses are more efficient at creativeness and innovation than the large-scale businesses or organizations (Counsel 258).

The small-scale businesses contribute significantly to the exported products, production, and productivity of the U.S. Small-scale businesses contribute to between 30 to 70% of the revenues accrued from the exported goods. The share of employment in the small-scale businesses exceeds their value-added share. This implies that the value-added share per an employee in the small-scale businesses is lower than in the large-scale businesses. However, this does not imply that the large-scale companies contribute significantly to the U.S. exports. The process of the productivity growth and the overall costs of productivity determine the contribution of the businesses. This makes the small-scale business have a better export contribution than the large-scale businesses (Engineering 128).

Additionally, the productivity in the small-scale businesses contributes to the competitive growth and sustainability of the U.S. economy. The SMEs accounts for most of the businesses that enter, exit, growth, and decline of most businesses in the current global business environment. As such, these small businesses form the integral component of the competitive process aggregate the productivity of the SMEs. The entrance and growth of new small businesses stimulate stiff competition that leads to creativity and innovation among the small-scale businesses, hence, enhanced economic growth. In line with this, financial report for the financial year 2008 showed that, the small-scale businesses comprised of approximately 97.3% of the exporters and 30.2% of the total export value of the U.S. As such, this shows the significant ways in which the small businesses contribute to the U.S. economy (Robbins 295).

Furthermore, small businesses provide the U.S. citizens with opportunities to enter into the economic mainstream of the state. Individual ownership of the business ensures equity and active inclusion of the citizens in contributing to the growth of the economy. The small-scale businesses allow different individuals such as those from minor communities to achieve their desired financial success alongside pride due to accomplishing their desires. While most native whites own most of the large-scale businesses, small-scale businesses have provided the minority groups in the U.S. To exploit their business abilities and contribute to overall economic growth. The ability of the small-scale businesses to complement the large-scale businesses can boost the growth of the U.S. economy significantly. The small businesses supply most of the components required by the big businesses. They also provide the large businesses with services such as insurance, legal, and accounting alongside outsourcing services to them.

Consequently, this creates further job opportunities to the small-scale business owners and sparks innovation among them thereby influencing the overall growth of the U.S. economy indirectly. In addition, the small businesses influence the political power of the U.S. Small-business owners are voters. They are evenly distributed across the U.S. Besides, they influence various political decisions. Small businesses act as a binding factor for ethics and capitalism. The businesses integrate the economic and moral values that make the capitalist work in a way accepted in the society. These businesses form the key backbone of the local communities. As such, they participate in activities aimed at improving the social growth and development. Apart from this, the small-scale businesses contribute to the growth of the U.S. economy by reducing the poverty levels among its citizens. It reduces the dependency ratio and provides citizens with alternatives of earning a living hence, economic growth (Entrepreneurship 111).

Even with advantages identified, some scholars criticize the benefits that the small-scale enterprises have on the U.S. economy. Some critics have stated that, the small-scale businesses have significant impacts on the large businesses. The small businesses compete with the large businesses for similar customers. As such, they tend to provide goods and services at a relatively lower price than the large businesses thereby, affecting the market stability of the larger companies. The small businesses are highly volatile in nature. They are at high risk of collapsing as compared to the large businesses. The increased predisposition of the small businesses makes them play a little role in influencing the growth of the U.S. economy. While the analysis has shown that the small businesses contribute enormously to the export value of the U.S., many argue that, most of the small businesses produce for local use and consumption.