“Small-scale commercial production gives rise, every moment of every day, spontaneously to capitalism and the bourgeoisie… wherever small business and freedom of commerce exist, capitalism appears. » – VI Lenin
A great connoisseur and sworn enemy of the free market, Vladimir Lenin might smile a little if he witnessed what is happening to small businesses today in the current Covid-19 pandemic. Even before then, America was experiencing declining business start-up rates as well as a decline in homeownership, particularly among young people. The share of GDP represented by small businesses has fallen from 50 to 45% since the 1990s.
Today, the current pandemic and the policies implemented to contain it are creating a perfect storm that could devastate millions of already struggling businesses. Millions of small businesses have been forced to close their doors, and some likely won’t reopen until summer, if ever.
The longer the shutdown continues, the tougher things could become for many of the 30 million small businesses that employ about half of all Americans. The outlook is particularly bleak for restaurants, small retail establishments and “personal service” establishments like salons and gyms, whose main selling point against larger businesses is their size and familiarity with customers. According to the JP Morgan Institute, 50% of small businesses only have 15 days of cash reserves or less. If the shutdown lasts much longer, up to three-quarters of independent restaurants simply won’t survive. Ultimately, once the fog of the pandemic clears, we will likely see many more empty stores and many of our beloved local businesses abandoned. And the death toll is expected to include high-profile names like Nieman-Marcus, Rite-Aid and AMC Theaters. J. Crew and 24-hour fitness.
On the other hand, this pandemic could mark the beginning of a golden age for efficient, tech-savvy companies like Amazon, as well as better-capitalized chains like McDonalds or Chick-fil-a, which have done well turned to online platforms and are better placed to return. at full activity after the disturbance. If the shutdown lasts much longer, expect your local taco stand to be replaced by establishments like Taco Bell or Chipotle and Panda Express’ family-friendly Chinese restaurant.
“Feudalism with better marketing”
Small businesses have played a crucial role in America’s remarkable ethnic record. In America and other Western countries, historian Ellis Rivkin suggests, “the fate of Jews and Judaism came to depend on capitalist revolution” as feudal barriers disappeared. Over the past century, other newcomers – Italians, Chinese, Indians, Cubans, Africans to name notable examples – have focused on small businesses to gain access to the middle class. In recent years, entrepreneurship has particularly grown among immigrants and, increasingly, among women, eager to take a chance on independence and self-sufficiency.
The loss of small businesses over the past decade has significantly changed the unique character of many of our major cities. Ethnic shopping districts, like Chicago’s once-vibrant Polish neighborhoods, have all but lost their stores and customers. In New York, the once-ubiquitous delis and Greek restaurants have become an endangered species. City Journal notes that in Gotham, once home to small, independent restaurants, larger restaurant groups have begun to “dominate the dining scene.”
But these concerns are not only tinged with nostalgia for the scent of the urban streets of yesteryear. It is also, perhaps even more so, about the massacre of small suburban businesses. After all, this is where native-born Americans of all stripes have concentrated: 80 percent of all residents of the country’s major metropolises live and work in the suburbs.
Here, the damage affects not only the main streets, but also large shopping complexes and shopping centers, centers that architect Tim Cisneros calls “the friend of immigrants.” Today, many of these shopping centers are facing bankruptcy because tenants can no longer pay their rent. Even before the pandemic, Center Square Investment Management estimated that 44% of current mall retail space would either be closed or reused over the next five to seven years.
This is not only a plea for the little guy, but also a warning for the future. Many companies led by Jewish founders started small: Home Depot, The hole, Costco (originally Price Club), The Limited, shopping center developers Simon Properties and Westfield Corp., Broadcom. They later became larger and many of them played key roles in the philanthropic life of their hometown and the Jewish community. With the decline of the economy, particularly with a long lockdown in key regions, the growth prospects of small businesses have diminished. Most face not a bright future, but what the Harvard Business Review calls “an existential threat.”
Today’s economy does not encourage risk-taking by foreigners. He prefers those who are already “insiders,” such as large, well-funded restaurant chains better equipped to adapt to online formats and future social distancing regimes. For most small businesses – the Panda Expresses of tomorrow, if you will – the future looks bleak. The National Restaurant Association estimates that more than 8 million restaurant workers have been laid off or furloughed since the coronavirus outbreak began in March. That represents more than two-thirds of the 12 million employees who worked in the nation’s food service establishments in February.
Even more than the big chains, the long-term winners will be the big tech giants. Even before the pandemic, companies such as Microsoft, Facebook, Apple, Amazon, Google and Netflix had market power, either together or alone, that covers up to 80-90% of key markets like operating systems for mobile phones, computer programs, online services. purchasing and research.
The pandemic appears likely to strengthen their already growing grip on the stock market and the economy. Once seen as dominated by risk-taking entrepreneurs starting in a garage and backed by credit card debt, technology is now defined by corporate concentration, as one might imagine. A joke about Silicon Valley described as “feudalism with better marketing”.
The pandemic will likely accelerate this process. With jobs scarce, these companies now benefit from an ever-increasing ability to recruit tech talent who are no longer looking for startups. Like mainstream companies, small entrepreneurial technology companies are losing ground to their giant competitors or are forced to accept subordinate status.
The biggest threat
What’s even more galling for small businesses is seeing funds flow to luxury real estate owners, hedge funds and brokerages. The Indian-origin owner of our local UPS franchise said that even though the bailouts were aimed at large companies, his company was denied a loan. Small restaurants have been allowed to struggle while funds are diverted to better-financed and better-connected companies like the Ruth Criss and Potbelly chains, which also have access to Wall Street money. Many large companies like Papa John’s, KFC, Wendy’s needed the money because they spent much of their money on “buybacks” of their own stock, and are now asking taxpayers to fill their cash shortages that they are themselves inflicted.
What is at stake is not just a change in the economic landscape, but the social disaster that the collapse of small businesses could bring. After all, it’s the local businessman who is most likely to support your town’s football or baseball team. And in ethnic communities – Jewish, Chinese, Indian, Caribbean, Latino – it is the entrepreneur who funds the local church, temple and school that serves their communities. Yes, large companies also donate, but their employees are often temporary residents of cities and communities; their primary loyalty is to their business, not to their neighbors or ethnic group.
This has always been particularly critical for Jews who, over their long history, learned the benefits of communal self-governance. “Do you see a man diligent in his affairs?” » asks Proverbs (22:29) “He will stand before kings. » In our history, it was the entrepreneurs – the Rothschilds, the Bronfmans, the Lauders, the Lowys, the Adelsons, the Marcuses – who provided crucial support for things like the State of Israel, Jewish education and the fight against anti-Semitism.
Today, that support is under threat as business prospects fade. Jewish philanthropy, like that of others, is in free fall, and traditional money alone cannot stem the tide. Currently, the JCC and other Jewish organizations are prepares for major budget cuts. To survive this economic downturn, Jewish organizations, synagogues and schools need more than inherited money: they need the contribution and energy of those who are still growing. An entrepreneurial bloodbath will turn into a community disaster.
Yet we must not forget that the devastation wreaked on small businesses is not just about the fate of our economy or our philanthropy. It is also about the nature of our society and the sustainability of the institutions of our Republic. Throughout history, as Aristotle noted, independent proprietors have been the driving force behind self-government and republican order. Aristotle also warned of the dangers of an oligarchy that would control both the economy and the state. Ultimately, ever-greater consolidation of wealth played a major role in the weakening of Greek democracy and the citizen-led Roman Republic. When the small proprietor declines, as in ancient Greece and Rome, and now in America, we see the unstoppable rise of the oligarchy.
This suggests that, for political, social, and economic reasons, it is imperative to find ways to help Main Street survive. A country dominated by a small group of mega-corporations and an increasingly intrusive state may retain the forms of a republican democracy, but will essentially become more and more feudal, repressive and constrained.
Joel Kotkin is Presidential Fellow in Urban Futures at Chapman University and executive director of the Urban Reform Institute. His next book, The Coming of Neo-Feudalism, will be released by Encounter in late spring. You can follow him on Twitter @joelkotkin