The Office of Advocacy's authorizing legislation, Public Law 96-302, requires the Office of Advocacy to "examine the role of small business in the American economy and the contribution which small business can make in improving competition, encouraging economic and social mobility for all citizens, restraining inflation, spurring production, expanding employment opportunities, increasing productiity, promoting exports, stimulating innovation and entrepreneurship, and providing an avenue through which new and untested products and services can be brought to the marketplace." As part of this requirement, the Office of Advocacy has conducted research on the small business economy for the past 30 years and has published an annual small business economic report since 1982.
This edition of The Small Business Economy documents small business's role in the economy of 2004 and includes chapters focusing on minority- and veteran-owned businesses, taxation, procurement, financing, regulation, and innovation.
The Small Business Economy
In Chapter 1 of the 2005 edition of The Small Business
Economy, the Office of Advocacy reviews the
economic environment for small businesses in the
year 2004:
The economic recovery continued in 2004, and real gross domestic product increased at an annual rate of 3.75 percent over the course of the year. The economy added 1.3 million net new nonfarm private jobs.
New employer firms and the number of self-employed increased.
Financial Markets
Chapter 2 examines the financial markets for small
business in 2004:
Growth continued in the financial markets in 2004, as the economy continued to expand and the core inflation rate remained moderate.
The overall initial public offering market was very active, with new 2004 issues valued at more than double the average levels of 2002-2003.
Procurement
Chapter 3 finds that small businesses benefited not
only from federal acquisition of goods and services
from small firms in 2004, but also from changes that
helped clarify the federal procurement environment
for small businesses:
New subcontracting regulations provided better guidance to large businesses subcontracting with small businesses.
Small business stakeholders were invited to participate in the process of redesigning small business size standards.
New regulations were issued governing the counting of procurement awards to small firms acquired by large firms.
The fourth generation of the Federal Procurement Data System was introduced.
Minority and Veteran Entrepreneurship
The subjects of Chapters 4 and 5 are new research on
minority and veteran entrepreneurship. The research
on minority-owned businesses examines the
literature on racial differences in business outcomes.
Business ownership rates among women, which track somewhat differently from those of men by ethnicity or race, show that self-employment for African-American women and Latinas increased steadily over the 1979-2003 period. Self-employment rates for Asian-American women remained roughly constant.
A residential survey conducted during the sum- mer of 2003 revealed that a significant 22.1 percent of veterans in the household population were either purchasing or starting a new business or considering doing so.
Tax Complexity and Uncertainty
In Chapter 6, Advocacy economists support the
argument that tax policies that promote ease of
compliance while reducing uncertainty are more conducive
to economic growth. They also contend that a well
understood and predictable environment in which
simple, stable rules are the norm is optimal for small
business success.
The Regulatory Flexibility Act
Chapter 7 summarizes recent Regulatory Flexibility
Act developments in the law's 25th anniversary year
of working to improve the regulatory environment
for small businesses. The Office of Advocacy
continued to work with states to enact and implement
similar state legislation for the benefit of small
businesses and other small entities struggling to keep up
with the cumulative burden of regulation at all levels
of government.
The Role of Small Firms in Innovation
In Chapter 8, renowned economist William Baumol
explores the reasons for the basic division of labor
between the entrepreneurial search for radical
innovations performed by small firms, and the development
and marketing of those innovations by larger firms.
This report was peer-reviewed consistent with
Advocacy's data quality guidelines. More
information on this process can be obtained by contacting
the director of economic research at
advocacy@sba.gov
or (202) 205-6533.
This Small Business Research Summary summarizes one of a series of research papers prepared by the U.S. Small Business Administration's Office of Advocacy. The opinions and recommendations of the authors of this study do not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office's website at www.sba.gov/advo.
