Policy Perspectives: The Economic Benefits of Encouraging Small Businesses to Grow

The role of small businesses necessarily features prominently in any discussion of the British Columbia economy. Indeed, it is no exaggeration to say that an orientation toward small businesses is a defining characteristic of the province’s private sector.

Highlights

• Small businesses, including self-employed owner-operators with no paid employees, account for 98% of all businesses in BC. Of the 385,900 small businesses in the province in 2012, 216,800 were owner-operators with no paid personnel, while 169,100 had between 1 and 49 employees on the payroll.
• BC has only 6,900 “large” businesses – defined as those that employ more than 50 people. The Business Council estimates that 600-700 firms in BC have more than 500 employees.
• Most small businesses don’t grow, and many disappear over time. Research confirms that the very small proportion of businesses which expand rapidly account for a surprisingly large share of net job creation at the economy-wide level. In the US, the fastest growing 1% of businesses are responsible for two-fifths of overall job creation, while the fastest growing 5% account for two-thirds of all net new jobs.
• On average, larger enterprises are more productive than smaller firms, as measured by value added and productivity per worker. They also pay their employees more and are more likely to export beyond local markets.
• Developing a more prosperous BC economy depends on creating an environment in which more small businesses evolve to become medium-sized and large enterprises. Government taxation, regulatory and industrial policies should put a higher priority on establishing conditions that encourage and reward highly innovative and growth-oriented businesses.