Cities, Destinies, & How Small Biz Got Crushed in the Process

Every once in a while, I come across a really insightful article that not only sheds important new light on its main topic, but also obliquely surfaces interesting ideas on a secondary topic. Phillip Longman's recent piece in The Atlantic, Why the Economic Fates of America's Cities Diverged, is just such an article. And I highly recommend it.

Location, Location, Location.

The focus of the piece is on income inequality and how that manifested itself through the differing fortunes of cities across the United States. Mr. Longman relays how America's history has essentially been marked by efforts to balance economic & political power so it doesn't geographically concentrate in a few elite cities or regions at the expense of the rest of the country. 

Up until the mid-1970s, the federal government had been mainly successful in achieving that balance. The median incomes of places like St. Louis and Cleveland were not that far behind New York City, Boston, and San Francisco. The South and the West were making great strides in catching up to the Northeast coastal cities.

From an income perspective, that trend has reversed. Geography now plays an exceptionally important role in the success of individuals and business enterprises. And when it comes to wealth, income, and influence, a few major cities have attained elite status. Although places like Houston and Charlotte have boomed economically, they have fallen way behind places like New York, Seattle, San Francisco, and Washington, DC when it comes to median income— relative to where they were in the 1960s.

After knocking down potential causes like big city amenities, effects of technology, and the deindustrialization of the Rust Belt cities, Mr. Longman postulates that the cause is a dramatic shift in public policy, starting in the Carter administration and continuing to the present day. 

Mr. Longman then gives us a fascinating history lesson on the evolution of public policy & regulation (don't worry, it's really readable & not too wonky). It shows a strong determination by the federal government (and both major political parties) to structure and regulate markets in a way that encouraged the local control of local business (example: the Clayton Anti-Trust Act).

Own a small, local business? You'll want to read on...

The article continues with the progression of legislation that protected small businesses. There was the Robinson-Patman Act which restricted chain stores by putting floors on discounting, prohibiting the extraction of unfair discounts from suppliers, and capping market share in any given locale. 

The Celler-Kefauver Act in the 1950s prevented the wholesale takeovers of small enterprises by larger ones on the basis that these acquisitions shifted power & profits out of local communities to big cities, where the larger corporations were headquartered and big investor interests lived. Mr. Longman also references studies that have shown the negative impacts on civic life when business ownership leaves a city—including declines in local charitable giving, lower participation in cultural activities, and declines in the percentage of eligible people voting. 

Since the mid-1970s, most of these safeguards have been rolled back under the banner of deregulation. Changes in patent policy and financial regulation have further contributed to technology and banking companies (and their economic impacts) aggregating in a few areas of the country. To crystallize the impact of this, under the old regulations, a grocery chain would have been restricted to 7% market share in a metro area. Today, Wal-Mart accounts for more than 50% of all grocery sales in more than 40 metropolitan areas.

Why is this important for small businesses?

Although Mr. Longman's focus is on income disparity, his interpretations of its causes hold a vital lesson for small enterprises: You have to pay attention to public policy & regulatory changes. It's onerous and time-consuming; but business owners need to get involved in policy and hold policy makers accountable. It's difficult because much of this activity happens in Washington, the U.S. Chamber of Commerce is bought & paid for by large corporations, and the press thinks it's arcana and rarely reports on it. But there is no doubt that federal regulatory policy greatly impacts you as small business owners. 

Read the article and look past the income inequality angle for a moment. I'm not sure there are any easy answers. But regardless of where you fall on the political spectrum, I think you'll find the article offers small business owners much to think about.

Let me know what you think in the comments. Hopefully, we'll get an interesting conversation going.

The article includes a quote from Hubert Humphrey and I think it's a perfect place to end:

"We are talking about the kind of America we want. … Do we want an America where the economic marketplace is filled with a few Frankensteins and giants? Or do we want an America where there are thousands upon thousands of small entrepreneurs, independent businessmen, and landholders who can stand on their own feet and talk back to their government or to anyone else?"

To read the article...

From The Atlantic

From The Atlantic