Business review; New business formations

From the national educational radio network here is a Business Review ASSOCIATE PROFESSOR ROSS Wilhelm of the University of Michigan Graduate School of Business Administration presents his views in the commons of business and economic activity in recent months we've heard increasing numbers of individuals express the fear that big business is getting bigger. The large number of mergers of corporations in the phenomenal growth of conglomerate firms are usually cited as evidence. Actually the data on business formations does not substantiate these fears. According to a recent Wall Street Journal article the government's index on new business formations which measures the number of new businesses Minus the number of firms discontinuing operations is at its highest level since 1948. While it's true we have seen a rise in the number of mergers only about 5000 firms a year go out of business because of merger acquisition. While nearly 500000 new businesses were started in 1968 we have about 11 and a half million business firms in the United States about 10 million of these are unincorporated businesses while the rest are corporations. The number of businesses in

the nation varies with changes in business activity and increases in the population. When business is booming the pop and the population is growing we have the largest number of businesses the size of the business population changes with the market when people have lots of money to spend and the number of people is increasing. We have an expansion in the number of firms to serve the public. Conversely the number of businesses declines when the market contracts the bulk of our businesses are not corporations rather most are small operations employing fewer than 20 persons. About one third are around 3 million of our businesses or farms. They're the largest single category. The next largest category consists of service firms such as barber shops and beauty shops laundry shoe repair shops and so on. We have a little over 2 million of these. We also have about a million and a half retail stores in the rest of the businesses that are be found largely in finance insurance real estate transportation communications construction wholesaling and manufacturing. Now actually while the birth rate of new businesses is very high

the death rate or the failure rate of new business is also as high as starkly about 8 1/2 percent new businesses are born each year in the failure rate runs about 7 percent per year to further confuse the picture around 9 percent of the businesses change their name each year but keep on operating. It's appropriate to question whether the high failure rate and high birth rates of businesses are desirable. Would our society be better off if we were not to have such high business turnover. Not the point you must always keep in mind is that we live in a very dynamic world our tastes are continuously changing and if these changing demands are to be met we must shift our people in our machines and our other resources from unwanted things to the production of wanted things. The great bulk of our business births and business failures reflect these changes in consumer demands new businesses are started up in those areas where the consumer demand a strong and growing while businesses are discontinuing operations in those areas where the demand is weak or declining. Actually the high birth and death rates of businesses in our

economy are one of the best measures as to how responsive business is to changing consumer wants. We have a highly competitive economy designed to change that to serve the changing consumer demands. Such a situation does require high rates of business birth and death. If the consumer is to be king and if he is to be served as he wishes it would be a matter of grave concern of these rates were not high. There seems to be little reason to fear that small business is dying an air economy indeed just the opposite seems to be the case. Small business thrives where there is a need for the personal touch are highly specialized or tailor made things are being demanded. And as we grow richer and as we as a people have more affluence we demand more and more specialized and tailor made goods and services and we want fewer standardised off the shelf items. As our society and people become richer we seek to express our individuality more and more in the things we buy and consume. We just don't want to be treated as so many standardised robots who have no unique characteristics as

they seem to try and do in many socialist states such as Red China. Rather we demand that we be treated as individuals and as our incomes are rising to meet this need we have to have a highly flexible and adaptable economic system such as ours. Small businesses stronger than ever in its long run outlook is brighter than ever. That was Associate Professor Ross Wilhelm of the University of Michigan Graduate School of Business Administration. With his views and comments on business and economic activity Business Review is recorded by the University of Michigan Broadcasting Service. This is the national educational radio network.