The Impact of Small Business on the Economy

California's small businesses, which average 5.8 employees, comprise 98% of all businesses in the state, provide 82% of the private sector jobs, and 75% of the gross state product. California has the largest economy in the nation and fifth largest in the world.  California small businesses are the backbone of our state’s economy. 

Jobs

Small business is by far the state’s largest employer. The state, through the Technology Trade and Commerce Agency, reports that California has over 1 million small businesses, employing over 7.8 million people, and over 2 million small businesses with no employees. In addition, individual owners, partners, spouses, and other family members work in these 3 million small businesses, but are not counted as “employees.”  Altogether, it is fair to estimate that well over 12 million Californians work in small businesses.

Economic Growth and Recovery

Virtually all of the growth in the California economy since 1975 has been brought about by small business. Because small businesses comprise 98% of all businesses in the state, when they produce more goods and services and hire more workers, the economy grows. This is the reason California small businesses have led the way out of every previous recession. California does not grow and prosper unless, and until, a large number of small businesses begin starting up or expanding, buying new equipment, and employing new people.

Small businesses are very flexible and can respond quickly to changes in economic conditions.  This is an essential factor in bringing about swift recovery.

Goods and Services

Most purchases are made from small businesses. Small businesses furnish essential and locally available goods and services at reasonable prices to California residents, large and small businesses, public and private organizations, and federal, state, and local governments. If small businesses went “on strike,” almost all activity in the state would cease. 

 Revenue

Small businesses generate a very large percentage of the revenue received by state and local governments.  They collect sales tax revenue, pay taxes on their profits, and, even more importantly, create taxable personal income for their 12 million owners and employees.  Small businesses also pay property taxes, permits, licenses, fees, assessments, etc. 

Note that most of the owners of California’s three million small businesses are California residents who pay California income taxes, unlike the stockholders of California’s large businesses who are spread out over the entire world. 

Small businesses also export goods and services to other states and foreign countries, bringing outside dollars into California and further enlarging the revenue base.

The Impact of Small Business on Society

Small business is the glue that binds capitalism with ethics.  Small business integrates the moral and economic values that make capitalism work in a socially acceptable way in modern society. Small business owners form the backbone of their local communities: they work in their businesses; they live near their businesses; they participate in community activities; they support local charities; they share community concerns about the environment, crime, etc. Most of them maintain a high level of business ethics in the course of providing jobs to their employees, and goods and services to their customers. 

Forming a small business provides many individuals with their only opportunity to rise above the poverty level. No government programs have matched the success of small business in accomplishing this objective.

Small businesses are also the most efficient and effective training ground for young people and unskilled workers. Government job training programs cannot replace this diversified on-the-job experience.

The Impact of Small Business on Politics

Small business people are voters.  The power of over 14 million potential voters resides in an enormous small business community of intelligent people.  California has over 3 million small businesses. Even the smallest enterprise has at least one owner. Many include partners, shareholders, spouses, and other family members, all of whom depend on small businesses for a living. In California, almost 8 million employees and their families depend on small business jobs. Many are as concerned as their employers about ill-conceived laws and unnecessary or inappropriate government regulations, paperwork, inspections, taxes, and fees.

Small businesses and their employees form a true cross section of the California citizenry, representing every race, creed, age, national origin, political persuasion, and financial status.