Why Saul Eslake’s article is ‘offensive to anyone working in a small business’
Renowned economist Saul Eslake recently published an article on the ANU Press Library site titled The Costs and Consequences of “Small Business Fetishism”. This was pointed out in an article on The conversation and a review in the Aaustralian financial review December 29.
Eslake’s article is one of those opinions I’ve seen regularly over the years that attempts to hide a disdain for small business behind a deadpan facade of unproven statistics and assumptions. The newspaper is offensive to anyone working in a small business in Australia.
From an economic perspective, the document does not consider the gains to Australia from the public good provided through our social and economic needs.
What is a small business?
Let’s start with the fact that the document does not disclose the assumptions used in the analysis. Specifically, what assumption was used to define a “small business”? Was it the narrow $2 million turnover used by ABS? Or was it the $10 million threshold used by the ATO and the Australian Ombudsman for Small and Family Businesses? Or was it the 15 employee threshold used under the Fair Work Act (2009)?
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Judging by the conclusions he reached, Eslake adopted the narrowest definition of a small business to assert a prejudicial position against small businesses that bears no resemblance to reality. Its apparent demarcation between a small business and a “new business” – the vast majority of which are started as small businesses that stay small – is a case in point.
But what this article shows – and what most economists fail to grasp – is that small businesses are first and foremost run by a human being, or two, who make tangible and intangible contributions to society in which we all live. They are not administrators removed from the local world. I, and many like me, are passionate about the needs and rights of small businesses because we recognize the multiplier effect of human effort – a fact that economic theory fails to account for.
Eslake’s article effectively applies reductionist thinking to degrade the very livelihoods of the 6.5 million Australians who work in small businesses in Australia. The article takes a dogmatic and narrow approach to economics – that of laissez-faire economics – and that is where it fails.
The “public good” of small business
Economists postulate and, for their postulates to be valid, they must be calibrated with the intangibles that generally escape their analysis. They like to call these “economic externalities” because they can’t be easily factored into their modern economic models, but the rest of us know these imponderables like real life.
Eslake’s article discusses tax gap statistics, for example, but fails to acknowledge ATO statistics that suggest it’s only a very small percentage of small businesses that deliberately cheat the tax system. . So if the tax gap for small businesses is bigger than it should be, that logically means the system is too complicated for small businesses. This system is designed for larger companies with more resources.
It should be noted that the amount of lost revenue pales in comparison to the tax avoidance strategies of large multinational corporations – think Amazon, Apple and the rest. While I agree with Eslake that the ATO is not hostile to small businesses, he fails to note that the ATO does not design the tax system. The tax system is designed by the Treasury, which is full of laissez-faire economists who have never run a business and cannot quantify the public good benefits of small business in terms of creating healthy and small economies. dynamics across the country.
The report also ignores the value of volunteerism and sponsorship of community organizations. Community sport operates through the support of small business owners and their employees. Small business owners make up the bulk of sponsors, and club presidents and treasurers are often independent contractors. Big companies support national sports teams and charities (due to national level exposure), but smaller companies quietly support those in their communities.
Eslake’s analysis therefore ignores the “public good” of small business, because it cannot easily be accounted for within the theoretical mathematical construction of economic theory.
The engine room
The “myth” of the engine room has not been debunked. The 2.5 million small businesses mentioned employ 6.5 million Australians in total, using the ATO definition of $10 million in turnover. According to this definition, small businesses make up just over 50% of the national workforce, while large businesses (32%) and the public sector (18%) make up the rest.
The country’s small businesses quietly go about their day-to-day work in the country’s economic “engine room”, as opposed to the big, blue chip companies that live in the “wheelhouse” and have traditionally won major concessions from governments through fierce lobbying behind closed political doors. If the small business lobby has succeeded, it is not because of the huge resources purchased, but because of passion, facts and political and economic reality.
Eslake also suggests that SMEs should not be supported beyond the pandemic. Surely he’s trying to be humorous? Big companies like Coles and Woolies have claimed lives during the pandemic as people were cooped up at home and most had to cook. While some small local businesses have done well, many have not, especially those located in the CBDs of our capitals and those in industries like hospitality. Now that they can open, these businesses are struggling to find the workers needed to rebuild their business.
Apart from airlines, which continue to receive aid, small businesses that support domestic and international travel have been decimated. They will continue to need support as the tourism sector recovers.
The reality is that small businesses – indeed small and medium-sized enterprises (or SMEs) – are indeed the engine room of the community and a key part of the economy, and only an argument based on biased economic analysis could never suggest otherwise. Indeed, any politician who believes in such nonsense does so at his peril at election time.