Small Businesses and Their Role in Our Economy

Why are small businesses important for any economy?

You might be wondering what defines a small business; it usually refers to a business with a limited number of employees, lower revenue, less capital, and often a labor-intensive structure. Small businesses are typically structured as either sole proprietorships or partnerships.

Now, referring to the question—why are they important?

The government’s main source of revenue is tax, which is the revenue collected from citizens. Tax can be either direct or indirect; direct tax is collected from incomes, while indirect taxes are levied on goods and services rather than on income or profits. When there are numerous small businesses, tax collection becomes vital for the government to fund social welfare and boost the economy. Benefits like unemployment assistance, infrastructure, education, and hospitals are all partially funded by taxes.

Additionally, small businesses create competition in the market. How, you might ask? Simply put, when there are more competitors, it forces existing businesses to offer better quality products or services at lower prices. It’s crucial for businesses to maintain these two standards—if they don’t, they risk being pushed out of competition and potentially failing. Higher quality at lower prices raises the standard of living and improves social welfare.

Without small businesses, monopolies may emerge, leading to a lot of exploitation, which isn’t ideal. The importance of small businesses goes far beyond these points, and if I were to list them all, this would be an endless read.

Written by Daniil Eremin