America's mayors are right to support small business

I’ve been pretty critical of Zohran Mamdani’s ideas for New York City. His plan to make buses free would degrade the quality of public transit and make it both less useful and less popular. His idea to open government-run grocery stores would just fail outright. His rent control plan would at least partially undermine his housing plans, while his proposed tax increases would probably accelerate the exodus of New York’s crucial finance industry.

But at least one of Zohran’s ideas is excellent: His support for small business. In a recent video, he promised to make it “faster, easier, and cheaper” for small retail businesses to open in NYC, to cut fines and fees for these businesses by 50%, to accelerate permits and applications, to slash regulations, to have government workers who help small businesses navigate government requirements, and to increase funding for small business support programs by 500%. Many of these ideas are listed on Mamdani’s website.

Mamdani’s push to support small business is part of a larger overall theme within America’s revitalized socialist movement, and within modern progressivism in general — a deep suspicion of big corporations and an instinctive support for mom & pops. It’s not just movement progressives, either. Daniel Lurie, San Francisco’s mayor, is widely regarded as a centrist, and yet he has made support for small retail businesses a keystone of his approach to urban revitalization:

Mayor Daniel Lurie today signed five ordinances from his PermitSF legislative package, driving the city’s economic recovery by making major structural changes that will help small business owners and property owners secure the permits they need more easily and efficiently. Reforms include common-sense measures to support small businesses through the permitting process, boost the city’s nightlife businesses, help families maintain their homes, and increase flexibility to support businesses downtown.

And here’s what he tweeted back in May:

No more permits for sidewalk tables and chairs—putting $2,500 back in the pockets of small businesses and saving them valuable time…No more permits and fees to put your business name in your store window or paint it on your storefront…No more trips to the Permit Center to have candles on your restaurant’s table…No more rigid rules about what your security gate must look like so businesses have more options to secure their storefronts…No more long waits or costly reviews for straightforward improvements to your home, like replacing a back deck…And we’re getting rid of outdated rules to give downtown businesses more flexibility with how to use their ground-floor spaces—because if adding childcare centers and gyms will help bring companies and employees back downtown, we should support it…In addition, every city department involved in permitting will track timelines and publish them online…Learn more about the initiative at https://sf.gov/permitsf

I’m extremely happy about this trend. To be frank, there’s not much to like in the model of progressive local governance that has emerged over the last two decades. Cumbersome regulations that slow construction and raise costs, public money funneled to useless or corrupt nonprofits, permissive policies toward crime and disorder, and weakening public education in the name of “equity” have all sadly become part of the standard progressive package, with predictably terrible results. (Lurie is known as a “centrist” because he has tried to rectify at least some of these problems.)

But the emerging support for small business is a very important bright spot! First of all, it’s an example of progressives supporting productive enterprise, rather than treating every type of human activity as an opportunity for ad-hoc redistribution. Progressives talk endlessly about “resources”, but the pool of resources in a city is not fixed. If you make buses scary to use by allowing disorderly people onto them, or if you limit new housing construction with regulation, or if you outsource city services to less competent nonprofits, the total amount of your city’s resources goes down, and there is simply less to go around.

But small businesses increase a city’s total resources, because they are productive enterprises. Every restaurant means a greater variety of food to eat, every boutique means a greater selection of clothes to wear. They’re an incredibly important component of capitalism, providing productive employment for almost half of all private-sector workers.

At this point, some hard-headed conservative is going to pop up to inform me that small business is inherently less efficient at production than big business. And this is generally true. Economies of scale are a real thing — when you can leverage the distribution networks and high volumes of Wal-Mart, you can afford to charge consumers lower prices than a corner bodega that doesn’t have those advantages.

That’s why big chain stores tend to drive mom-and-pop shops out of business when they come to town. When chains drive out small businesses, productivity goes up significantly — in fact, Foster, Haltiwanger, and Krizan (2006) estimated that this was the main source of productivity growth for the U.S. retail industry in the late 20th century.¹

And yet when small business dies, something important is lost. For one thing, an important path to the middle class is closed off. Small business provides a lot of employment, but the class whose lives are transformed the most are the business owners themselves. This is from a 2014 report by the Urban Institute:

Family-business ownership is associated with faster upward mobility than observed in paid work once selection is addressed….[We find] a positive and significant [causal effect] on family-business ownership, where the outcome is upward income mobility from 1980 to 1999…[Our results] suggest that family-business ownership led to a higher level of economic advancement relative to working for someone else in the 1980s and 1990s. Owning or having a management stake in a small business had an unambiguously positive effect on upward income mobility during the 1980s and 1990s after controlling for resources in the 1970s.

This is the reason for Japan’s legendarily staunch support of small retail businesses. The country offers small businesspeople a dizzying array of cheap loans, tax incentives, subsidies for technological upgrading, free training and education, expedited permitting and regulatory approval, startup subsidies, various place-based policies, protection from competition by large chains, and so on.

Small business is considered a key pillar of the Japanese middle class, and also an escape hatch for independent-minded Japanese people to escape the often stifling corporate system. Altogether, small businesses of all types are responsible for 70% of Japanese employment, which is significantly higher than in the U.S. This preponderance of small business has probably held back Japan’s productivity to some degree, but it’s a sacrifice the country has been willing to make.

In the United States, small business is especially important as a ladder of upward mobility for immigrants, as anyone whose immigrant ancestors owned a convenience store, a furniture store, or a gas station can attest. Immigrants own a disproportionately high percent of the country’s mom-and-pop shops, especially in the restaurant industry.