Shutdowns for Small Business, Windfall Profits for Megacorporations
Restrictions meant to limit coronavirus spread have hit Main Street hard, and left big business booming.
Corporate media and critics of President Trump—the same thing, actually—debate whether “re-opening the economy too soon caused the virus to rage out of control.” While there is ample evidence the virus is not raging out of control, there is even more evidence “the economy” did not shut down.
Major parts of the economy—big business, finance, tech, media government, defense industries—never shut down. Perhaps it was because these virus profiteers didn’t want us to notice they were doing better than ever during the lockdown that they played up the “we’re all in this together” fiction.
WalMart, Target and Costco weren’t in it. Neither was Dollar General. Amazon really wasn’t in it. Jeff Bezos racked up major profits peddling the very items your neighborhood storeowner was prohibited from selling.
Nor was it just the big box mass merchandisers and online retailers responsible for flooding our country with cheap Chinese goods that profited from the Chinese virus flooding our country. Fast food franchises remained open, drive-through windows operating at full tilt, while independently owned restaurants cooled their gas jets. Factories and workshops that didn’t have defense or government contracts shut down. Many will not reopen.
What has been billed as “the economic shutdown” would more accurately be described as the small business shutdown.
Robert Fairlie, an economist at the University of California, Santa Cruz studied the early effects of COVID-19 on small business owners for the National Bureau of Economic Research. He found the number of working business owners fell from 15 million to 11.7 million between February and April 2020—a drop of 22 percent. The impact on minority owned businesses was even worse. The number of African-American business owners plummeted from 1.1 million to 640,000—a 41 percent decline.
Harvard researchers surveying over 5,800 U.S. small business owners report massive dislocation from the pandemic among small businesses, and the prospects for their survival diminish the longer the crisis continues. “When firms are told to expect a six-month crisis, the average expectation of remaining open [until December 2020] falls to 38 percent,” the study found. It could take up to a year to know the toll on small business.
The impact differs among types of businesses. Restaurateurs surveyed gave themselves only a 15 percent chance of survival if the crisis lasts six months, businesses in tourism and lodging, 27 percent. But those in banking, finance, real estate and professional services expect they will be able to fare far better than those other, more exposed sectors.
Data from Yelp, the online small business review site, show nearly 66,000 businesses have folded since March 1 with the highest rate of closures occurring in the last two weeks in June. Retail businesses were hit especially hard, with beauty supply stores topping the casualty list. Restaurants were next. The NBER study found African American businesses are more often in the higher risk sectors.
By now its clear the pandemic is accelerating a trend that’s been underway for some time: the corporate consolidation of the economy. Small business startups are at a historic low. The Kauffman Foundation, citing its own research and U.S. Census data, reports the number of companies less than a year old as a share of all businesses declined by nearly 44 percent between 1978 and 2012. MIT researchers found the four largest companies in the average industry had a significantly larger share of sales in 2012 than they did in 1982.
Consolidation in the financial industry, as regional banks are swallowed up or regulated out of existence, has taken a corresponding toll on independent businesses. Smaller regional banks are the key source of credit for small business.
The unrest that followed the George Floyd killing has also hit Black-owned businesses that fall disproportionately in the retail sector. This is not the first time black businesses have suffered in the drive for racial equity. Better-capitalized competitors displaced black-owned small businesses following integration.
Filmmaker John Sayles captured the unintended consequence of the civil rights movement in an elegiac exchange from his film “Sunshine State.” A veteran of the movement explains how it was—and what was—lost: “Used to be you were black you’d buy black. Jim Crowe days, you need your shoes shined, wanted to ride in a taxi to the train station, wanted some ribs, fish sandwich, chances are a black man owned the place you got it in. Now the drive-throughs serve anybody. But who owns them? Not us. All our people does is wearing paper hats and dipping out them fries.”
Today’s integration of the national economy with “the global economy” has fitted countless Americans of all colors with paper hats. CNBC’s Jim Cramer asks if America will be left with only three retailers after the shutdown: Amazon, WalMart and Costco. If so, it would be a trifecta of disaster—economic, geostrategic and political.
Startups and small enterprises have traditionally been America’s engine of innovation. Industry concentration leads to stagnation, not innovation. Cartels divide up the market and fix prices to drive profits; they have no need to develop new, better products.
Corporate consolidation poses a geopolitical threat as well. The consolidation of U.S. retailing helped drive China’s rise as it became the workshop of the world. WalMart used its dominant market position to make vendors an offer they couldn’t refuse. Buyers in Bentonville would dictate the price they would pay: the China Price, what it cost to source the goods from China. The box on the shelf in Aisle Six bore the familiar name of Hamilton Beach, but the coffeemaker inside would be made in China, not Wisconsin.
(China plans to exploit the pandemic’s economic chaos to tighten its grip on global supply chains. The Chinese dragon, along with our own private equity sharks, are ready to swoop in on smaller companies and startups with promising technology vulnerable in these hard times.)
This corporate takeover of the economy is not in our political interest either, as small business owners are more likely to be conservative. Main Street has been the traditional base of the Republican Party. At its founding, the party supported a decentralized society with artisans, farmers, and factories working side by side as both producers and consumers in regional economies. A century later, prosperous small and medium-sized regional businessmen financed the conservative uprising behind Barry Goldwater and Ronald Reagan in 1964 (and the America First Committee a generation before).
These independent businessmen from towns and cities across the USA distrusted the Eastern Establishment. They saw a government-corporate cartel manipulating credit and commodity prices to benefit financiers and speculators at the expense of producers. When the modern GOP forsook Main Street for Wall Street, it betrayed its heritage and its base while aiding and abetting its political enemies.
Corporate giants toe the left’s social justice line. They support philanthropies, speech codes, and advertiser boycotts as the commissars demand. If conservatives allow the pandemic to accelerate the corporate takeover of the economy, we will be undercutting our strongest base of support: small business.
This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.