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Will Obamacare Make the U.S. More Like Europe?

The American dream of being a small business owner and the story of the U.S. as a nation of small businesses is largely a dream. Will Obama's health care plan promote small business?
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The right knows that they are supposed to hate Obamacare; the only problem is that they keep forgetting why. According to a study that they have been widely touting it promises to both increase coverage and reduce costs. Presumably these are not the reasons they oppose President Obama's plan.

One of the other reasons that the right has pushed is that President Obama's plan will be a serious impediment to the growth of small business, because it will require that they either provide coverage to their workers or pay a tax to support their coverage. The right tells us that the sort of tax/mandates that President Obama wants to impose on small business will stifle entrepreneurship and make the United States more like Europe.

When our friends on the right make this sort of argument, they once again leave the facts behind. John Schmitt, my colleague at the Center for Economic and Policy Research, just did a short study compiling evidence from the OECD on the relative importance of small business in the U.S. and Europe. It turns out that by every available measure, the U.S. is way behind when it comes to the relative importance of entrepreneurship and small business.

Let's start with the most basic measure, self-employment. We all know that everyone in America wants to run their own business. 7.2 percent of the workers in this country actually do. That puts us ahead of Luxembourg's self-employment rate of 6.1 percent, but behind everyone else. France has a self-employment rate of 9.0 percent, Germany 12.0 percent, and Italy 26.4 percent. If we exclude agriculture, our 7.5 percent self-employment rate for non-agricultural workers puts us ahead of Norway, but still far behind everyone else.

Okay, maybe self-employment doesn't tell us much about the role of small business. After all, there are many small family-run retail shops in Europe. That may not be most people's idea of entrepreneurship.

How about the share of small firms (fewer than 20 employees) in manufacturing employment? Well, our 11.1 percent share again beats out Luxembourg, and also Ireland, but it trails all the other countries for which the OECD has data.

Maybe 20 employees is not the right cutoff for a definition of small businesses in manufacturing. How about 500? By that measure, the U.S. comes in dead last. France's 63.7 percent share beats our 51.2 percent share by more than a dozen percentage points.

Perhaps we should just ignore manufacturing, that's old economy stuff. Surely the U.S. stands out for its vibrant computer upstarts. The 32.0 percent small firm employment share in computer related services beats Spain's 27.0 percent, but is well behind everyone else. Belgium, the capital of Old Europe, more than doubles our small business share, with 63.0 percent of its workers in this sector employed by establishments with less than 100 employees.

The U.S. does a hair better if we shift the focus to the research and development (including biomedical research). In the U.S., 25.3 percent of the workers in this sector are employed at establishments with fewer than 100 workers. That beats the 20.3 percent share in the Netherlands and the 22.5 percent share in the United Kingdom. However, the small business employment share in the U.S. is far behind the 33.1 percent share in France and the 35.0 percent share in Germany.

In short, the American dream of being a small business owner and the story of the United States as a nation of dynamic small businesses is largely a dream. It does not conform to the economic reality.

Will President Obama's health care plan promote small business and make us more like Europe? It very well might. One possible explanation for the relatively smaller role of small business in the U.S. economy is that concern over access to health insurance makes many people reluctant to strike out on their own and start a small business. The prospect of being stuck without health insurance has to be very scary for a 50-year old with some health problems.

Of course there are many other factors that also affect the ability of new businesses to be created and thrive, but as a simple factual matter, the idea that Europe's welfare state has strangled small businesses is not true. The politicians and pundits should be corrected when they spew such nonsense.