The Risk Takers

July 29, 1963

The politicians and planners in Washington are as sincerely eager to eliminate unemployment as anybody. But if they are really to solve the problem, they need to understand how jobs come into being, and who brings them into being. It is not merely some impersonal and automatic thing called “consumer purchasing power.” Jobs exist because employers provide them. And employers start new ventures, or expand old ones, only when they see a prospect of profit commensurate with the risks.

The interests of “Labor” and “Business” are not antagonistic. On the contrary, in the long run they are practically identical. Employees can have well-paying jobs and maximum employment only if employers and risk takers have adequate incentives. As President Kennedy once put it: “Our primary challenge is not how to divide the economic pie, but how to enlarge it.”

But maximum output and full employment are often blocked because politicians and planners have a grossly oversimplified idea of who constitutes “Business.” They think of “Business” as made up of a few giant corporations or the heads of such corporations. They lecture these imaginary few on their “social responsibilities” and duties. And when “Business” is hesitant they chide the businessmen for their lack of confidence and for their “neurotic search for unending reassurance.”

3 MILLION EMPLOYERS

The picture of business as consisting of or dominated by a few giant corporations is quite false. Let us look at the situation concerning corporations alone. In 1959 more than a million of them—1,074,120, to be exact—filed income-tax returns. True, there were giants among them. As many as 2,319 had assets of more than $50 million each. But 590,000, or more than half, had assets of less than $100,000 each.

In addition to these million corporations there were 949,000 active partnerships, and 9,142,000 businesses and farms under a sole proprietor! Nor were the contributions of these unincorporated enterprises negligible. Where corporations reported a net income of $47 billion in 1959, unincorporated enterprises reported $46 billion.

Nor do small businesses, whether incorporated or not, make a negligible contribution to employment. In 1959, there were, in fact, more than 3.3 million separate employers reporting under the Social Security Act. Of these, only 54,000 employed 100 or more persons each. More than 1.9 million employed only three or fewer each. About 3 million employed fewer than twenty persons each, yet these small firms provided more than a fourth of total employment in commerce and industry.

NEED FOR CONFIDENCE

This is how American business is made up. It consists of literally millions of employers, literally millions of risk takers. Who are these millions of small risk takers? They are people who, having saved a little money, start a hot-dog stand or a roadside diner or a filling station; or open a bakery or a paperback-book store or a dress shop or a TV repair service; or install a new “laundrymat” or a new bowling alley; or build a house in the suburbs for resale, or remodel a building for doctors, or develop a new shopping center. What they do, and how many of them do it, depends on the risk climate in which they operate.

These small risk takers have no automatic assurance of success. At the beginning of 1961, a fairly typical year, there were 4.7 million firms in operation; but during the year 398,000, or nearly one in every twelve, were discontinued. Fortunately the ranks were filled by 437,000 new businesses.

The extent to which these millions of small risk takers start new ventures and create new jobs depends on their estimate of the chances of making and keeping a profit compared with the risk of losing their whole capital.

These are the people the politicians and planners should keep in mind, and not only the heads of a few giant corporations, in order to recognize the need of maintaining a climate of “business confidence.”