Are Small Business Owners Getting Thrown Under the Bus by Both Parties? Part 1: Setting the Stage

I learned something very interesting from Lindert's Growing Public that made me think about some modern economic and political issues in a new way.  Specifically, Lindert describes how early regimes dominated by the very wealthy, particularly in England but also in the Dutch Republic, had relatively generous social spending around the beginning of the industrial revolution.  However, as they extended the franchise their poor laws were restricted and made less generous, in England specifically by the 1834 poor laws.  This seems curious since the general story is that increasing the franchise increased the government's concern for its citizens.

Lindert explains why this story is wrong.  The early extensions of suffrage primarily extended beyond the magnates to fairly well off men who were still propertied.  These men faced a different set of incentive than the large landowners.  Large landowners were concerned primarily with retaining a large labor pool, they didn't want their seasonal labor help moving to cities in slack times.  They were willing to pay something, and have others pay even more, to help out the poor so that this labor was available when needed.

After the extension of suffrage the interests of the propertied elite changed.  They didn't have the same labor concerns and didn't want to pay for it.  They were just as likely to benefit from migration as they were to lose from it.  So they voted to restrict relief.

Now, these concerns aren't directly comparable to modern day problems, but I do think that the differences in interests between the well-off and the really well-off are still discernible.  Advance warning, the rest of this post is really speculative, I haven't hunted down much data to really back it up.

With that warning out of the way, lets reason this out.  Think of big business as market makers, they can influence labor prices and are mostly concerned with the size of the pool they can recruit from.  This makes them have a slightly more favorable attitude towards labor promoting social welfare, though on the whole they're pretty ambivalent about it if they're having to pay for it since they can always invest in capital instead.  Small business owners, however, aren't market makers.  Their wage rates will largely be set by larger industry players, if they're a small boutique they may pay wages somewhat above the big guys to attract talent, smaller players may just try to meet industry standard wages or pay below to get whatever qualified workers are left over.  They don't care much about macroeconomic factors like the size of the labor pool, their profitability is based on their relative competitiveness to the bigger guys, if industry standard wages go up or down this just doesn't matter a great deal to them since they're concerned with their costs relative to the bigger guys.  They're more concerned about factors they can control and account for, like their immediate taxes and take home, so they're opposed to social programs that cost money.

So this sets the stage.  Large companies with diversified operations will have a marginally more incentive to favor social policies than small businesses since they are more sensitive to aggregate labor market conditions while small businesses will be more focused on relative costs rather than broad aggregates.  Since small business owners get more of their income directly from their businesses profits, rather than filtered through a more complex process of stock prices and dividend decisions at the corporate board level, they have a greater sensitivity to tax rates (for much the same reason as people get more worked up by gas taxes than they do by more indirect taxes).  From a starting point, small businesses are more opposed to social programs generally than large businesses.  It may not always be the case that this perception is accurate, small businesses are less likely to have specialists that will interpret labor market forecasts for instance so may miss potential benefits I'll get into this more later, but it is a very real perception.

[This is going to be longer than I expected]