Shutdowns for Small Business, Windfall Profits for Megacorporations

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Corporate media and critics of President Trump—the same thing, actually—debate whether “re-opening the economy too soon caused the virus to rage out of control.” While there is ample evidence the virus is not raging out of control, there is even more evidence “the economy” did not shut down.

Major parts of the economy—big business, finance, tech, media government, defense industries—never shut down. Perhaps it was because these virus profiteers didn’t want us to notice they were doing better than ever during the lockdown that they played up the “we’re all in this together” fiction.

WalMart, Target and Costco weren’t in it. Neither was Dollar General. Amazon really wasn’t in it. Jeff Bezos racked up major profits peddling the very items your neighborhood storeowner was prohibited from selling.

Nor was it just the big box mass merchandisers and online retailers responsible for flooding our country with cheap Chinese goods that profited from the Chinese virus flooding our country. Fast food franchises remained open, drive-through windows operating at full tilt, while independently owned restaurants cooled their gas jets. Factories and workshops that didn’t have defense or government contracts shut down. Many will not reopen.

What has been billed as “the economic shutdown” would more accurately be described as the small business shutdown.

Robert Fairlie, an economist at the University of California, Santa Cruz studied the early effects of COVID-19 on small business owners for the National Bureau of Economic Research. He found the number of working business owners fell from 15 million to 11.7 million between February and April 2020—a drop of 22 percent. The impact on minority owned businesses was even worse. The number of African-American business owners plummeted from 1.1 million to 640,000—a 41 percent decline.

Harvard researchers surveying over 5,800 U.S. small business owners report massive dislocation from the pandemic among small businesses, and the prospects for their survival diminish the longer the crisis continues. “When firms are told to expect a six-month crisis, the average expectation of remaining open [until December 2020] falls to 38 percent,” the study found. It could take up to a year to know the toll on small business.

The impact differs among types of businesses. Restaurateurs surveyed gave themselves only a 15 percent chance of survival if the crisis lasts six months, businesses in tourism and lodging, 27 percent.  But those in banking, finance, real estate and professional services expect they will be able to fare far better than those other, more exposed sectors.

Data from Yelp, the online small business review site, show nearly 66,000 businesses have folded since March 1 with the highest rate of closures occurring in the last two weeks in June. Retail businesses were hit especially hard, with beauty supply stores topping the casualty list. Restaurants were next. The NBER study found African American businesses are more often in the higher risk sectors.

By now its clear the pandemic is accelerating a trend that’s been underway for some time: the corporate consolidation of the economy. Small business startups are at a historic low. The Kauffman Foundation, citing its own research and U.S. Census data, reports the number of companies less than a year old as a share of all businesses declined by nearly 44 percent between 1978 and 2012. MIT researchers found the four largest companies in the average industry had a significantly larger share of sales in 2012 than they did in 1982.

Consolidation in the financial industry, as regional banks are swallowed up or regulated out of existence, has taken a corresponding toll on independent businesses. Smaller regional banks are the key source of credit for small business.

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