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Sam Adams

Small Business in Descent

More Facts on a Major Phenomenon

(March 1943)

From The New International, Vol. IX No. 3, March 1943, pp. 75–76.
Transcribed & marked up by Einde O’Callaghan.

Small businesses, especially those engaged in non-war production, were fated for extinction the moment American economy began seriously to convert industrial plant and conserve raw materials for war production. The total nature of this war and the fact that American industry must supply the material war needs of all the members of the United Nations makes it impossible to view the problem of small business and non-essential manufacturers on the basis of the experience of World War I. The present problem is basically different, because the demands of the present war are of such character and magnitude that currents and tendencies of 1914–18 are no longer a barometer for measuring probable developments in industry in this war.

For all the protestations of the liberals and the helpless pleas of the little business men and manufacturers are in vain. The bourgeois war economy would be strangulated if it endeavored to throw any substantial crumbs, in the form of war contracts, to the multitude of small enterprises which exist in this country. Small industry cannot possibly compete with the huge monopolies which have received the bulk of the billions of dollars’ worth of war contracts issued from Washington. Moreover, it is no accident that the control in the issuance of these contracts is in the hands of the big corporations – without them, the war Administration could not possibly extend the conversion of production into a complete war economy. They are indispensable; the small businesses and manufacturers are, from the point of view of the war, a dispensable luxury.

Several weeks ago, William J. Enright, in a review of a Dun & Bradstreet report (New York Times, February 28), wrote: “Despite a sharp decline in bankruptcies this year, the death rate of business concerns is exceeding births by a wide margin and a net loss in establishments far in excess of 100,000 was forecast for 1945 by business executives last week.”

Formation of new firms, dissolution of old ones constantly take place under the most normal economic conditions. Even now, in the midst of the war, many new firms are organized to capitalize on contracts arising from war needs. In a large number of instances, these new firms are merely subsidiaries and auxiliaries of already existent enterprises. But often they are new, representing a shift of business men engaged in non-war industries to raw material and manufacturing industries directly or indirectly related to the new production.

The present rate of business births and deaths is in no way normal; as a matter of fact, it is extremely abnormal. While the formation of new firms to take advantage of the gravy dished out with war contracts are usually war-duration enterprises, the dissolution of thousands and thousands of old firms has a permanent character. Their elimination only fortifies the position of the monopolist firms which absorb the machinery, plant and raw materials of the old firms. Once eliminated from the economic scene, these old firms will find it exceedingly difficult to return in the event the war is successfully terminated for American capitalism. The monopoly combines will have made certain that these difficulties will become almost insurmountable.

According to the figures of Dun & Bradstreet (they vary slightly from official figures and those of other agencies) there were, at the end of January, 1942, 2,194,100 establishments in existence. At the end of January, 1943, this total had dropped to 2,106,000, or a net loss of 87,500 concerns. Since there were only 9,400 bankruptcies in this same period, companies which went out of business on such grounds were only about ten per cent of the total number of business failures.

For the past ten years, or mid-way in the existence of the New Deal, the organization of new companies exceeded the expiration of existing businesses. This trend was sharply reversed in 1942 and for the first time in this ten-year period the death of business enterprises exceeded the creation of new ones. The total number of failures over new firms for each two-month period in 1942 ran between 15,000 and 18,000 firms. The 254,021 new companies which were formed during the past year were more than offset by the death of 312,604 old companies.

An interesting aspect of this trend is that the percentage of dying companies in excess of new enterprises, increased. Thus, for the two-month period of December (1942)-January (1943), 28,700 new firms were organized, but 46,800 concerns went out of business. On the basis of this development, the death of small enterprises threatens to reach a new high in 1943. During this year, the completion of the war economy will be witnessed with a general tightening up of the loose ends, a more categoric organization of raw materials, manpower and production for the war. The estimate of the Department of Commerce that about 300,000 firms would go out of business during 1943 is considered conservative by Enright. It will be closer to 400,000. This means that the “obliterations” of old firms in excess of new formations will be far larger than 100,000 and probably closer to 200,000.

Exceedingly significant social implications will follow this tendency, which results in a strengthening of monopoly capitalism and a weakening of economic strength of a large section of the middle class. Many of the latter will find themselves reduced to the ranks of the proletariat, to become fully absorbed by it. Others will find their way toward complete reaction. Whatever the political ramifications of this economic development may be, the immediate effect of this change is to sharpen the division between the classes. For a more extended discussion of this problem, we refer our readers to the article, The Middle Class in Crisis, contained in the October 1942 issue of The New International.

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