Congressional concern for small business.-Historically, the Congress has been a champion of small business. In time, this concern for the viability of small business firms led to the establishment of the Small Business Administration (SBA), which became the first independent agency of the Federal Government charged with the duty to aid, counsel, assist, and protect insofar as is possible the interest of small business. Even prior to this, the U.S. House of Representatives created a select committee to study and investigate the problems facing the small business community. At a later date, the U.S. Senate created its own Select Committee on Small Business. The current Federal effort to promote minority owned business began in 1964 with the SBA "6 X 6" Pilot program with loans of up to $6,000 for up to 6 years. A year later Title IV of the Economic Opportunity Act expanded the pilot program and increased the maximum loan amount to $25,000 for up to 15 years. This was later increased to $50,000. There were only slight modifications in this program until 1968 when the SBA announced its "Project OWN" which expanded Minority Enterprise effort into all SBA program areas. In March 1969 SBA lannched "Operation Business Mainstream" which expanded "Project OWN" into all SBA offices and expanded the new position of Minority Enterprise Representative. Even more recently under Executive Order 11625 (dated October 13, 1971) the Office of Minority Business Enterprise was established within the Department of Commerce to aid and coordinate the federal effort of establishing minority owned businesses. The concern of the Congress for the welfare of small businesses and the concomitant duty to overview the functioning of SBA have required keeping in continuous focus the standing and progress of small business firms. A critical evaluation of the role of small business encompasses a study of statistical information in retrospect and a look forward into the impact of existing and proposed Federal statutes on the functioning of small firms so that they remain true partners in the Nation's economy. As to the minority owned business, the data reported herein will provide the basic framework from which to begin to access the impact. of the federal efforts to aid minority business. This will become particularly important in the future as we begin to measure the net result of various efforts on behalf of minority owned businesses in relation not only to absolute numbers and dollar value, but also in terms of minority owned business receipts in relation to the total small business economy on the one hand and the total business economy on the other. The Senate Select Committee-no doubt the House Select Committee also has been handicapped in its appraisal of the development of the small business sector by a lack of reliable information bearing on the total business universe and the size of the small firm sector. The overall totals for earlier years had been deficient and the annual gains, or losses, had been obscured, particularly as to the happenings in the component industry divisions. Accordingly, the Senate Select Committee has studied, in some detail, both Bureau of the Census and the Internal Revenue Service data in respect to number of firms in the various industry divisions arrayed by a common measure of size. Relevant information was explored as to the contribution of the various size groups in furnishing employment and as to its share of total output. Census and IRS statistics are data base. The study as conceived originally, and actually carried out would formulate totals from each of the two sources for three somewhat comparable periods in time corresponding to business census years. After this had been accomplished, additional data became available, in IRS publications, for 3 more successive years. This presentation, therefore, contains a limited amount of updated information beyond what had first been contemplated. The IRS publications also afforded a limited opportunity to evaluate corporate business firms by size of total assests. Asset size has often been used to measure corporate power. Several tables present totals based on this measure of size. Based on IRS figures, the total number of business firms, exclusive of agriculture, forestry, and fisheries, stood at 8,214,000 in 1967. In 1962 (5 years earlier) the total was 7,783,000 and in 1958 (4 years before 1962) the total was 7,096,000. The latest IRS figure, that for 1970, reveals a corresponding figure of 8,763,000. At the close of 1972, an estimate of 9 million business firms seems to be warranted. It should be kept in mind that throughout this report the general small business data includes minority owned businesses. No effort has been made to distinguish minority businesses from the non-minority owned businesses except for the comprehensive treatment of minority owned businesses in chapter VI. The predominant industry division, in terms of numbers, in 1967 and in each succeeding year through 1970 has been services. In both 1962 and 1958, wholesale and retail trade combined, occupied this premier position. This broad category dropped to second place in 1967 and has since maintained this rank. Finance, insurance, and real estate has occupied third place in number of business firms in each year under review. The term, "business receipts" is a measure of business size mentioned in the SBA Act. It is a reasonably reliable measure of the importance of firms-more so within an industry division than between divisions. In 1967, total business receipts amounted to approximately $1.5 trillion. In 1970, the figure was nearing $1.9 trillion, the real increase being hidden by higher unit prices. Manufacturing firms, which in 1967 comprised only 4.9 percent of the total business firms, contributed 38.6 percent of the total business receipts. If the IRS statistics for 1968, 1969, and 1970 had not been reviewed, a generalization would have been made that corporations were increasing both in total number and in relative precentage. In 1958, the percentage of corporations to the total number of firms was 13.8; in 1962, this percentage was 16.0; and in 1967, the percentage had increased to 18.3. The increases cited covered a spread of several years and any aberrations between individual years are hidden. In contrast, the 18.2 percent for 1968, the 18.9 percent for 1969, and the 18.6 percent for 1970 do not strongly support an earlier conclusion that corporate firms have increased relatively to other legal forms of organization, though the actual number of corporations did increase. Noteworthly is the fact that corporations have the lion's share of business receipts, reaching 85.1 percent in both 1969 and 1970. The percentage was 76.6 percent in 1958 and 84 percent in 1967. Corporations which in 1967 comprised slightly more than 18 percent of all active businesses had nearly 84 percent of the dollar volume of business receipts but a much smaller proportion (68 percent) of the net income after giving account to deficit-reporting firms. In 1958, the largest corporate firms, those with business receipts of one-half billion dollars or more, numbered 107, and their business income amounted to 15.5 percent of the grand total for all firms in all industries (data for firms of this size are not available for 1962 or 1967). Business classifications are important. The classifications of business firms, by the amount of business receipts reported to IRS, seem to offer the best approach to the estimation of the number of firms in the small business sector. Once a demarcation line has been satisfactorily established, the proportion of the total number and of the total business receipts can be expressed in percentages. An inspection of the data, herein presented, suggests that the dividing line between small and large firms be no lower than $1 million of business receipts. That amount of business receipts translates into an employment of 10 to 60 persons (assuming a range from about $100,000 revenue per employee for a wholesale firm down to almost $16,000 per employee for a firm providing a service). Under SBA rules and regulations, firms with higher gross incomes than $1 million are eligible for SBA assistance and, therefore, can be thought of as being in the small business sector. Of course, in SBA reckoning there is a countervailing number of firms, those with business receipts of less than $1 million which are outside the pale of SBA assistance because of individual or group dominancy in their respective fields of activity. The small business population in 1967 was estimated at 8 million (actually 7,989,000) of the overall total of 8,214,000 firms exclusive of agriculture, forestry, and fisheries. This 8-million total was made. up of nearly 6 million sole proprietorships, most of the 800,000 partnerships, and a predominant part of the 1.5 million corporations. The number of small businesses represented nearly 97.5 percent (actually 97.3 percent) of all firms, and this segment contributed nearly 30 percent to the business receipts total. Large firms numbered about 225,000. At the close of 1970, the number of small firms approached 8.5 million, or nearly 97 percent of the total of 8.75 million firms. Large firms had increased to about 280,000. The actual numerical change from one year to another has been affected by increases in unit prices and a changing concept of what should constitute a small concern. Based on a continual decrease in the precentage of the total business revenue going to small business from 1958 to 1962 and then to 1 Charts and tables in committee offices are available on request. 1967, it is conjectured that the 30-percent figure estimated for 1967 had not been maintained for 1970. The amount of assets held by a business firm has been used to measure its size relative to that of other firms. Assets data are available only for corporate firms. For 1970, IRS tabulations show there were 1,189 corporations controlling net assets of $250 million or more. This small number of large corporations possessed 58.4 percent of all corporate assets, but contributed only 37.5 percent of the business income accruing to the corporate sector. The dominance of such large firms is revealed by their continually increasing share of the total business income reported by all business firms (corporations, sole proprietorships and partnerships). Their share rose from 20.2 percent in 1958 to 31.9 percent in 1970. The number of corporations of this large asset size has increased continually also. Economic censuses.-The enumerations of business firms conducted by the Bureau of the Census are termed economic censuses. These economic censuses, the most recent for which data are presently available covering 1967, did not include as many industries or businesses as are subject to filing Federal income tax returns. The 1967 in-scope activities accounted for nearly 70 percent of the national income originating in the private sector. Sales and receipts for the census-covered business totaled nearly 87 percent of the amount reported as business receipts in the IRS tabulations. The Census Bureau collected data for establishment, and from these, company data have been formulated and furnished for this report. The company data in the census tabulations are not fully comparable with those for business firms in the IRS tabulations for identical industry groupings. Nevertheless, the former are useful and supplementary in that they supply information for persons employed and dollar income per employee. Conclusion. This report is intended to serve as a reference work, containing as it does, a wealth of statistics on business firms, both large and small, in the United States. The benchmark year is 1967, for which copious data are presented. For other years (some earlier and some later) less detailed statistics are given. In addition to presenting the current status of business, large and small in terms of numbers, business receipts, and income, employment, and so forth, it is hoped that this report will form the basis for future estimates of the business population and related statistics. THE U.S.A. BUSINESS COMMUNITY: ITS COMPOSITION AND CHANGING NATURE, WITH SPECIAL REFERENCE TO SMALL BUSINESS (INCLUDING SELECTED STATISTICS ON MINORITY-OWNED FIRMS) SEPTEMBER 24, 1974.-Ordered to be printed Mr. BIBLE, from the Select Committee on Small Business, REPORT CHAPTER I A SHORT HISTORY OF BUSINESS IN THE UNITED STATES Diversity of business.-Producing goods and providing services give rise to numerous commercial ventures, collectively referred to as businesses. The diversity of business activities is illustrated by the major categories and numerous subdivisions thereof set forth in the Standard Industrial Classification Manual. In size, individual business concerns range from very small, independently owned 1 The Standard Industrial Classification Manual (SIC) is the responsibility of an intragovernmental technical committee headed by the Office of Management and Budget (formerly Bureau of the Budget). The system is used by all Federal Government agencies engaged in the classification of establishments. The SIC Manual is used by the Small Business Administration as a guide in defining industries. Its use is said to be advisory and not mandatory. (See part 121 SBA rules and regulations-revision 11, effective date December 1971). The Classification is intended to cover the entire field of economic activities: agriculture, forestry, and fisheries; mining; contract construction; manufacturing; transportation; communication; electric, gas, and sanitary services; wholesale and retail trade; finance, insurance, and real estate; services; government and non-classifiable establishments. The SIC Manual defines "manufacturing," "contract construction," and other industry divisions. An extensive revision, in 1957, does not affect the comparability of data given in this report. |