The Little Businesses That Can

In looking around El Salvador some people see their definition of small business change.

The concept shifts from a small building, with anywhere from several to a couple hundred employees, all the way down to a cart on any corner nobody has pushed you off of, and your 8 year old son at your side running snack deliveries to the cars that are stuck in traffic.

This is a small business.

When we look from a corporate influenced perspective it is easy to dismiss the importance of these businesses to the economy, to the society, and to financial independence here in general.

In a beer fueled tirade, I heard a local medium-sized-business-man explain to those seated nearby that though larger businesses may appear to bring in big dollars, they get unfair tax breaks and subsidies, only to employ people at impossibly low wages, and serve clients whose money never fully enters the local economy. He contrasted it against the localized economy of small, micro and even nano businesses. The money is small but stays more or less in the area it was earned.

These mercado stalls are not so small when you think about it

The earnings are low, but so are the overall prices. Many of these small businesses are not paying their taxes, but he considers it barely a problem in light of the very wealthy businesses getting as many as 10 years tax free, if they make a qualifying investment which some view as discriminatory.

Someone cited an example that if a business was to invest over $50,000 in a tourist related business, they could have very significant tax benefits for 10 years. The catch is that in order to qualify, the business must fund three studies each of which cost $5,000. (so….$15,000 in exchange for how much tax relief? hmmm…. let me get my calculator out)

Therefore only a large business could afford a tax break. The plan is inherently skewed in favor of large scale business, and therefore of tightly concentrated wealth.

The table pounding made his argument very convincing. Who needs factual verification…he sounded very certain.

Looking around, I see that I am surrounded by incredibly small businesses. These small businesses have a multi-fold impact. They compensate for low wages (I know very few families of what I consider “normal” income level that live solely on wages from their jobs, even fairly well off friends may have several occupations), they compensate for higher prices (I see workers from many centers file out toward the little carts for delicious lunches at a fraction of the cost) and they serve as a market layer where cash is distributed evenly and at a foundation level rather than going through any concentration or choke points first. The structure has its flaws, but it also has inherent strength as one thread of the economic web.

Hungry?

These smallest of businesses may be for the most part illegal in that they may not be paying all their taxes or permit fees, but given local wages I imagine they save the country money in many ways. They sustain families by creating gainful employment for some people who could never ever get hired (to do the very thing they are doing on their own just fine).

I wonder if we bought more fruit while trapped in traffic anyway, buy our bread when they guy comes by one the bike, and eat lunch at the little portable pupusa stand (the cleaner one, the one that is actually propped up on a few bricks so it looks almost like an oven, and where they tapped illegally into the water line so they can wash the dishes….yeah that one ) there may be almost no need for much public assistance. (other than the stolen water, and use of a public sidewalk)

The USA may may not be ready for people selling all kinds of stuff on the street, or blocking intersections with small commercial transactions. It´s messy, and some manifestations are an outgrowth of very negative things, but I still think we could take some positive pages from this book.

In the USA our cultural expectation of what a business is and what it should be is pretty harsh and limited. On the one hand we are aggressive thinkers, but on the other we can be uncomfortable with something that is closer to “self sustaining” than “explosive growth”. We consider “growth” itself to be the measure of success in a business (as opposed to profitability for instance), and our standard of profitability is based on a scale which pays investors in a manner which almost contradicts the logic of production as I understand it. We include “financial services” when we measure the economy, though they actually produce nothing of value (but rather at best, just enable the efforts of those who actually do produce something, and at worst serve as a debilitating parasite). We may have forgotten that you cannot actually eat money. Not forever anyway. And money is only as good as the length of time you choose to mutually agree on it’s value.

I do not propose that the USA abandon our belief in our aggressive and adventurous business approach, or that small business is inherently better than large. (Large business has HUGE benefits and I love large business! Viva la corporation!) But I do see that there is something to learn from this largely “informal” side of the economy, and also that there are limits to how much a region benefits from tax subsidies to companies who would really do just fine unassisted, and who do not provide a localized payout on a prompt timeline.

I also see something fundamental here, that is in large part lost from the USA mindset, in many regions. People getting out and doing something (in it’s simplest form) for money. Maybe every able bodied person marching up the welfare line marched out with a grille, a bread-bike or a rack of jewelry to sell at the nearest intersection. It might be bad for traffic flow (it is actually a huge pain, and I am always cussing about carts and stands blocking traffic), but on the flipside its great if you forgot to go to the grocery store and need some bananas or mangos on the way home. (or CDs, or windshield wipers, or cell phone covers, or bread, or cookies, or tortillas, or semillas, or mamones, or ….)

Two baskets down, one to go