share this trait with Murray: they are changemakers and trailblazers. And the numbers bear this out. “Small businesses create two‐thirds of net new jobs and are the driving force behind US innovation and competitiveness,” reported the SBA in 2018, which tracks business trends for the US government. Small businesses accounted for 44 percent of all economic activity in the United States and were responsible for $5.9 trillion in GDP in 2014, the last year for which complete data are available.5
As Steve's story shows, size has only a minor bearing on the power to create change. Sometimes, a small business owner acts alone to create change as an inventor, innovator, or leader. More often and more powerfully, owners act collectively, as employers and community builders, with the results of that collective action being powerful community change.
But in our collective search for convenience and lower prices, and in our embrace of size, we hardly see small businesses as the economic and community powerhouses they actually are. They are an irreplaceable part of the American experience, often finding creative solutions to everyday problems and bringing energy and focus to critical causes. Small business owners are the people whose passion for something is so crazy that they'll build a livelihood around it. And while they certainly don't have a lock on ethical business practices, you will often find them melding compassion and good business, doing good while doing well, and in many cases employing people on the margins of our society.
These are the reasons supporting New Builders is so important. We risk losing so much more than just economic output if we abandon these businesses. We lose a key part of what is in effect the soul of America.
Main Street USA
According to the statistics site FiveThirtyEight, “Main” is the most common street name in America, with 10,902 streets carrying this moniker. Strangely, the second most common street name in America is 2nd Street, followed by 1st Street – which seems counterintuitive but is backed by the data.6
The name Main Street has expansive connotations. It evokes nostalgia for smaller towns and simpler living. But, importantly, the idea of Main Street USA isn't just a part of our history and days gone by. It turns out that thriving Main Streets and the robust set of local entrepreneurs who line them, or who operate out of office parks, strip malls, and other clusters, are critical to our economy's future.
The high‐tech entrepreneurs who garner so much of our collective attention are a tiny sliver of the small businesses that drive the US economy. Fewer than 1 percent of entrepreneurs are backed by venture capital. Less than 250,000 businesses are “high‐tech.”
America's army of entrepreneurs includes many Main Street entrepreneurs – people whom we like to think of as grassroots entrepreneurs. Many New Builders come from their ranks and create much of the entrepreneurial activity across our nation. In the United States, small business is big business. Small businesses employ nearly half of the US workforce, over 60 million people. Smaller firms created over 1.6 million jobs in 2019. Importantly, firms that drove the most job growth were those that employed fewer than 20 people – a trend that matches that of prior years.
In a widely cited 2010 report, The Kauffman Foundation's Tim Kane argued that startups – companies less than a year into their existence – were responsible for essentially all of the job creation in the US economy.7 In other words, without entrepreneurs, our economy would not add new jobs. The report further notes, “Gross job creation at startups in the United States averaged more than three million jobs per year during 1992–2005, four times higher than any other yearly age group.”
There already was a cloud over the US small business economic engine. Even before the Covid‐19 pandemic, that same 2018 SBA report that described small businesses as the “driving force behind US innovation and competitiveness” showed that the percentage of overall economic output produced by smaller firms was declining relative to that of larger companies. In the 16 years from 1998 to 2014, the small business share of GDP fell to 43.5 percent from 48.0 percent, according to the report.
This shift away from recognizing the value of small business and the entrepreneurs who build them has occurred over the last 40 years. The Silicon Valley/high‐tech narrative is part of the reason. But there have been other changes in our economy that are important to understand as well.
How Big Became Beautiful
On September 13, 1970, economist Milton Friedman published one of the most influential essays in the history of business, “The Social Responsibility of Business Is to Increase Its Profits,” in the New York Times Magazine. It was, as the New York Times' DealBook staff noted in a retrospective published in 2020, “a call to arms for free‐market capitalism that influenced a generation of executives and political leaders, most notably Ronald Reagan and Margaret Thatcher.”8
DealBook's retrospective included reflections from Nobel Prize winners, corporate executives, and entrepreneurs who had grown large companies, but not a single small businessperson. This is the nature of reporting about business today. Serious opinions are the purview of those who have size on their side. That in itself is but one influence of Friedman's essay.
A lot of attention has been paid to Friedman lately, but too little has been paid to the effect of his thinking on the small business economy. In 1970, Friedman posited that shareholders were the most important stakeholders in the business world and, in his view, distributing profits to them was the most efficient economic system. At the time, Americans were becoming owners of public companies' stocks in increasing numbers, a trend that peaked in 2007 with about 65 percent of Americans owning public stock according to the polling firm Gallup. Lately this trend has reversed, with just over half of Americans – 55 percent – owning these securities.ii
Friedman's thinking changed the way corporations acted. It was common up until the 1970s for firms to reinvest their profits back into their businesses – into R&D and employee salaries and benefits. In his Harvard Business Review paper, “Profits without Prosperity,” Professor William Lazonick argues, “From the end of World War II until the late 1970s, a retain‐and‐reinvest approach to resource allocation prevailed at major US corporations. They retained earnings and reinvested them in increasing their capabilities, first and foremost, in the employees who helped make firms more competitive. They provided workers with higher incomes and greater job security.”9
After Friedman's seminal paper, the mantra quickly changed to become one that favored reducing costs and distributing the cash gains from those cost reductions to shareholders. Lazonick termed this new management imperative downsize‐and‐distribute.
The new approach favored value extraction over value creation (literally, taking cash out of businesses and putting it into shareholders' pockets). Along with the weakening of the power of labor, the rise of technology, and the increasing use of stock‐based compensation, this approach has contributed to increased income inequality and overall employment instability.
As Friedman famously put it, the only “social responsibility of business is to increase its profits.” Exacerbating this was the increasing use of stock‐based compensation for executives, which, while in theory aligning their interests with those of shareholders more broadly, in practical application served to drive short‐term profit‐seeking behavior. Not surprisingly, the largest component of the income of top earners (the top 0.1 percent) since the 1980s has been driven by stock‐based pay. This has also led to some unwanted market perversions. For example, from 2003 to 2012, the 449 companies of the S&P 500 listed