America’s Specialization Might be a Loosing Bet For Small Businesses
The US is loosing the amount of products that is able to produce which might not be a bad thing per se but it might be aloosing bet for small businesses.
According to Harvard Kennedy Center for International Development the US has been steadily declining towards being able to produce a smaller basket of products. This might seem like a trivial point at first sight, however we must take into consideration that small businesses normally are complements to bigger companies and the more specialized companies there are the less companies in total there will be given that specialized companies tend to carry a lot of their activities in-house.
Take a shoe manufacturer for example, an economy that only produces sandals and leather dress shoes in theory should have two shoe companies that use the same providers for rubber, fabrics, and leathers. An economy that produced sandals, leather dress shoes, running shoes, soccer shoes, and basketball shoes will most likely use different providers given the variety of products that the economy is able to produce.
Small businesses thrive in an environment where a variety of products have to be produce since small companies have the opportunity to compete in differentiating their products and bringing innovation by for example creating a sole that is unique to soccer shoes just to quote the example given above.
Many economist believe the the USAs slide towards producing a lesser variety of products have to do with globalization and the ability to easily manufacture products abroad, however this trend do not have to be a death sentence for small businesses and government can help by either:
- Incentivizing import-export to include small business
- Spend more on Research and Development to increase the amount of product that the USA can actually produce
The trend is clear and is time to reverse its course.
Source of graphic showing comparative complexity index between Germany, USA, and China. This index measures the variety of products an economy is able to produce. https://atlas.cid.harvard.edu/rankings