Before the 2008 financial collapse, small business played a prominent role in the United States economy contributing significantly to economic growth and job creation (Kolbe, 2007; Yallapragada & Bhuiyan, 2011). Today, the climate has changed because the focus has centered more on helping well-known brands than on promoting the creativity and innovation small businesses foster. The United States has kept score of the situation by turning attention away from small business entrepreneurs and reintroducing existing products and services.
Although austerity has created problems in Europe, the press for global free markets has blinded policy makers from focusing on the true source of economic renewal--entrepreneurship. Policy makers fail to take account of the contributions from small business to the economy and mistakenly focus on contributions to global markets. Meanwhile, the entire global economy has slowed and failed to produce the promised prosperity policy makers want.
Keeping score by restraining spending has failed before, but policy makers are slow to learn the lesson that keeping score this way does not produce the desired results. History has proven austerity is not the answer. Policy makers would do better to promote and encourage entrepreneurship by making policies to help entrepreneurs instead of centering on existing well-known producers of goods and services.
Although keeping score by looking at the financial statements is a conservative approach to managing a business, such scorekeeping is not enough to improve economic conditions. In fact, I would argue this scorekeeping mechanism is counterproductive. Accountants have long argued the cost concept has lost value. Some scholars argue market value accounting has more meaningful results, but today accounting is a mixture of cost and market value components damaging the value and usefulness of conventional scorekeeping (Landsman, 2007; Wagner & Garner, 2010). Further, accounting rules are inconsistent in global markets and favor well-known existing producers instead of the small business entrepreneur that tries to create new goods and services.
In my view, the United States would do better to adapt policy making to make it easier for small business entrepreneurs to compete and survive in the global markets (Baumol, Litan, & Schramm, 2007). Policy makers embroiled in gridlock fail to embrace small business entrepreneurs and do more to divide them than promote them. Championing the small business entrepreneur would restore the innovation and creativity the economy needs to fill unmet needs in the market. Social needs are an example where needs have gone met because government has lost the budget capacity to deal with such needs. Austerity kills creativity and promotes what Joseph Schumpeter called “creative destruction” (Pichler, 2010; Schumpeter, 1994).
In summary, scorekeeping in the United States has hurt small business entrepreneurship. Meanwhile, small business entrepreneurship is the engine driving economic growth, job creation, and recovery. The country has suspended these activities, while catering to existing well-known producers. An improved outlook depends on improved conditions for small business entrepreneurs. Keeping score is not the answer for restoring the economy; doing what is right matters.
By
J. Phillip “Phil” Harris, D.B.A.
Dr. Harris is the founder and principal of Acclaimed Professionals Group. Dr. Harris is an experienced business entrepreneur, a certified public accountant, and teaches at the University of Phoenix. He is also a member of Delta Mu Delta honor society and has a Masters of Business Administration in finance.
Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism and economics of growth and prosperity. New Haven, Conn. and London: Yale University Press.
Kolbe, K. (2007). How important are small businesses to the United States’ economy. Office of Advocacy, Funded Research, United States Department of Commerce, Bureau of the Census and International Trade Administration.
Landsman, W. R. (2007). Is fair value accounting information relevant and reliable? Evidence from capital market research. Accounting and Business Research, 37(3), 19-30. doi: 1305668461; 36386471; 20316; ACBRB5; ACB; INNNACB0000084410
Pichler, J. H. (2010). Innovation and creative destruction: At the centennial of Schumpeter’s theory and Its dialectics. Nase Gospodarstvo/Our Economy, 56(5-6), 52-58. doi: http://www.ng-epf.si
Schumpeter, J. A. (1994). Capitalism, Socialism, and Democracy. London, England: Routledge.
Wagner, A., & Garner, D. (2010). Fair value accounting - Fact Or fancy? Journal of Business & Economics Research, 8(11), 35-38. doi: 2203781611; 55953131; 108542; JBER; INODJBER0006898499
Yallapragada, R. R., & Bhuiyan, M. (2011). Small business entrepreneurships In The United States. Journal of Applied Business Research, 27(6), 117-122. doi: 2519801721; 65758121; 12637; JRH; INODJRH0007536491