One of my favourite things about my neighbourhood is my local grocery store, the Supermarché P.A. It’s a half block away, which means that my partner or I shop there almost every day for dinner makings. It’s tiny, maybe twice the size of my apartment; yet it almost always has the produce I am looking for and has a wider variety of prepared food than the big chain store I was in most recently – plus the prices are better. The staff are friendly (and bilingual!), the owner greets us when we come in the door, it’s a huge provider of jobs in the neighbourhood and I often run into friends when shopping for dinner. So.
Hurst and Pugsley, two University of Chicago economists, have written a paper to confront the recent (and not-so-recent) enthusiasm for small businesses, asking What Do Small Business Do? [pdf] Small businesses are often cast as being the haven of “entrepreneurs,” manna from heaven for productive innovation, jobs creation and economic growth. So they surveyed people starting new businesses. What’s their conclusion?
…few small businesses intend to bring a new idea to market. Instead, most intend to provide an existing service to an existing customer base. Further, using the same data, we find that most small businesses have little desire to grow big or to innovate in any observable way. We show that such behavior is consistent with the industry characteristics of the majority of small businesses, which are concentrated among skilled craftsmen, lawyers, real estate agents, doctors, small shopkeepers, and restaurateurs. Lastly, we show non pecuniary benefits (being one’s own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision.
In other words, most small businesses are just that – small businesses. Essential to the economy, but not engines of growth. Small business owners don’t generally have some better way of doing some old thing, they don’t usually plan to grow, and they aren’t motivated for the most part by a desire to work harder and reap more of the reward, but simply by the desire to work at their own pace.
The undercurrent here (these are University of Chicago economists after all) is that there is no market failure which small business subsidies actually address. Their point is that small businesses are a terrible proxy for innovative firms, labour-intensive production and services, and growth industries. Thus, small business benefits are market distorting, not market correcting.
The first problem with the conclusion is one of research design: they don’t have a negative case. They are studying the intentions and outcomes in a US small business sector which already benefits from a network of subsidies and tax benefits. The relevant question isn’t: given existing subsidies, what portion of the small business sector is innovative? It’s: without these subsidies, would the economy as a whole see lower employment growth, and less innovation? I don’t think they’ve provided relevant data to answer that question.
The other problem I have with their conclusions turns on their narrow definition of market failure. Now, for the most part they are responding to a certain set of arguments, so this isn’t a failing of the paper so much as of the entire discussion. Because the discussion seems to discount the overall social benefit of a rich ecology of small businesses. One of the market failures which small business subsidies can provide is that the market doesn’t necessarily make a city liveable, because there are obvious collective action problems in getting citizens to pay for ‘liveability.’
Now, does the P.A. benefit from small business subsidies? Maybe not – it does have another branch in another part of town. But there is no doubt that without these subsidies, my neighbourhood Starbucks may have priced out some of the local cafés, and the McDonald’s two blocks away would have found it easier to compete with local restaurants, rather than shutting down for lack of profitability three years ago. Now I don’t know about you, but that’s market distortion I can live with.
[h/t David Lizoain]
If democracy works at all, and MMP fails, we can just kick the bums out, and go back to our charming, ineffective, tradition.
The core argument underlying my support for the proportional representation proposal being put to the vote on October 10th – which will, with luck, ‘drag Ontario politics out of the 17th century and into the 21st – is laid out in the Ultra Vires here. Questionable title aside, included here are the sources and further discussion promise in the authornote.
To an accusation of ‘intellectual dishonesty’ received for this criticism of Urqhuart, which now includes a link to the original article, where, I maintain, he relies more on name-calling and misrepresentation than argument:
Besides those like Ian Urquhart who seem to get starry-eyed over the charms of any tradition, no matter how ineffective the institution…
I depend on statements such as these:
The system can lead to permanent minority governments and a proliferation of fringe parties;
which, in the middle a news article (describing the new proposal as “radical”) seems to fall short of reasonable standards of journalism, or argument, for that matter, especially when, as I stated in the piece, the proliferation of minority parliaments under proportional systems is debatable. Perhaps more blame might be laid on the Star’s editorial board than on Mr. Urquhart, who has remained silent on the issue for at least four months, especially since I view Mr. Urquhart’s opinions as generally insightful and well-informed.
To the core of the argument: some might disagree on the nature of democracy itself, but that’s worthy of a much longer article. However, even given support for the idea that debate, deliberation and consideration are as much, if not more important to ‘democracy’ than plurality voting systems unfortunately doesn’t dispose of the advisability of switching systems. Here, repeated, are the two strongest arguments against the October 10th proposal:
First, because the system will use party lists, MPPs may be less accountable to the ‘local constituency associations’ which this coalition somehow believes holds sway now. And because of the (debatably) higher likelihood of minority governments under the new system, they rail against the power that might be held by small parties, while discounting the unrepresentative sway held in the current system by large parties.
The real weakness of the proposal – the difficulty of almost any proportional representation system – is in choosing who gets the seats not allotted by local election. Clearly, opposition to party lists is about more than just accountability. While supporting ‘principled leadership’ over ‘administrative efficiency’, Lorne argues that party lists will only exacerbate the as-yet unquenched tendencies of parties toward corruption, nepotism, and personality-cultism, fed by a power-seeking motive which will only become more lucrative under the new proposal. Instead of inspired voices willing to spark public debate, lists will quickly fill with Machiavellian autocrats and a coterie of clashing sycophants. Underlying a belief in this process is a clearly identifiable incentive: with guaranteed access to at least partial power, politics inside every party will start to become personality-based, with those close to the core winning the spoils: almost-guaranteed seats.
This guy is likewise assured that party lists will toss Ontario head-first into an endless night of the long knives.
Yet with moderate regulation and moderate party discipline, the party list system could inspire the grassroots to seek out principled, eloquent representatives of the issues important to their party, instead of aligning around local level incumbents who are almost impossible to replace. If parties realize the potential of the list system, then conventions could become more like leadership conventions with many winners, instead of half-rigged races where the top dog also gets to choose, according to their personal motives, which contendors come in second, and third and fourth…
Perhaps Lorne’s experience with the Liberal party leads him to see dark days if the proposal wins, where I see real possibility of a passionate, informed public discourse. The NDP, despite attempts from the centre to manipulate results, has been surprsingly democratic of late.
Ultimately, the difference is, I’m willing to take the risk for the sake of democracy, and for the possibility of ending the ‘politics of fear.’
More on Arrow’s Democracy Paradox here, and on deliberative democrats here. An exciting proposal for more democratic politics, tangent to the electoral system proper was proposed in Fiskin and Acherman’s Deliberation Day.
For a decision to bring the re-opening of community centres to a vote in the next two weeks, Toronto’s Mayor Miller has been accused of bowing to pressure and flip-flopping on the issue.
It doesn’t really matter how the Star swings this thing. The past three weeks has been an act of brazen, awesome political theatre on the part of Miller. For those opposed to his ends, perhaps ‘shocking’ instead of awesome.
Miller did exactly what he needed to do to win the necessary support for the new taxes in the upcoming October vote: put a camera-ready service, that the middle class was willing to fight for, on the chopping block for – wait for it – a total of two Mondays.
Now, Miller may come off looking like a ‘flip-flopper’ or an opportunist, a political hack. Royson James, if he hadn’t already reached the limit of his ire, would probably have reached it after this series of decisions. But the Mayor has also tied serious, meaningful, painful service cuts to the taxes he wanted – just in time for the October vote on those taxes. Who would want to be the councillor voting for the re-closure of the community centres, after being on the local news for two weeks speaking out against those cuts? With three years left in his term, the taxes will still be around when the Mayor is done his, but the two Mondays without community centres will be gone from collective memory.
So, Miller ‘loses’, but he gets what he wants, which is what the city needs. And he’s still Mayor. Cynical? Sure. But nowhere near as cynical as all the councillors who voted against the proposal without offering alternatives, who changed their mind on the vote, losing the city $60 million this year, and who have focused on trashing the Mayor to their own political gain instead of mounting either i) support for the new taxes or ii) support for a meaningful alternative. Sometimes, when you’re dealing with whining children, you’ve got to play headmaster. Which he has done with style.
So, good on you, Mayor Miller. Bring on the new taxes.