Needed: Talent, Training & Tax Cuts

We have a wonderful sizzle," said a New York manufacturer at an American Management Association conference in Manhattan last week.

"What we want is more steak." The demands of some 4,000,000 other small operators for a bigger share of the nation's business are being pushed by twelve congressional committees and Government agencies, dozens of politicians and economists, who argue that the welfare of small companies is a key condition for prosperity. To them, the newest figures on small business are cause for some alarm. Business failures in 1956 are at the highest level (52 per 10,000) since 1940. Profits of manufacturers worth less than $1,000,000 have dropped $1.3 billion since 1947, from 13.8% to 4.7% of U.S. manufacturers' total earnings.

On the bright side of the picture is the fact that new companies are being organized at a faster rate (11,000 a month) than at any time since 1948. While the statistics can be misleading, since small companies are constantly growing into medium-sized businesses, economists are worried over the fact that sales of corporations with assets of less than $5,000,000 have slipped since 1951, while $100 million-plus companies have boosted sales 45%.

Actually, the growth of giant industries has in some ways produced a more favorable climate for the small concern. Since the small operator can often turn out a better product, big companies find it is economical to subcontract as much work as possible. General Electric Co. pays out nearly half its sales volume (1955 gross: more than $3 billion) to 42,000 subcontractors and suppliers, 90% of them small businesses. RCA closed a Camden (N.J.) transformer plant because small electronics manufacturers produced better components.

But too many small businessmen do not compete aggressively for subcontracts. They are reluctant to take sizable contracts from big companies, such as aircraft manufacturers, for fear that shifts by the big company might put them out of business. The Small Business Administration, in its three years of operation, has showed small businessmen how they can land a bigger share of defense business. Working closely with the Defense Department, SBA has boosted prime contracts with small companies from $2.9 billion to $3.4 billion a year since 1954. In short, small businessmen who complain that big business hogs defense contracts can get a bigger share if they go after it hard enough.

Small businessmen, who find it hard to raise stock market capital, also complain that they are being hit hardest by the credit pinch. Bankers dispute this, point out that business loans of under $100,000 are running 14% ahead of last year. The Small Business Administration in the first six months of 1956 approved more than $165 million in loans to small businessmen, twice the volume for first-half 1955.

The biggest and most justified complaint of small businessmen is that the present revenue law, which taxes all corporate income profits over $25,000 at the same rate, keeps the small enterprise from growing and competing with big business. Small companies traditionally have financed expansion by plowing back earnings. After surrendering 52% of his profits over $25,000 to the tax collector, the small businessman today has proportionately far less than the big company to invest in research, cost-cutting equipment and plant expansion.

Both political parties have pledged to ease the tax burden on small business at the next session of Congress. There is little doubt that tax relief for small businessmen is long overdue. But small businessmen are aware that even with tax relief they must make some drastic changes in the way they operate. To keep up with a complex and fast-changing economy, they know they must have more managerial training and executive talent. Says Herbert Barchoff, member of the Small Business Administration's national advisory council and president of Manhattan's $4,000,000-a-year Eastern Rolling Mills: "The day has passed when a seat-of-the-pants entrepreneur, by gumption and ingenuity, could build a fair-sized business."

The American Management Association recently announced the first series of educational programs for small businessmen in its 33-year history. This year more than 70 colleges and universities throughout the U.S. are offering a total of 157 SBA-sponsored courses for small-business executives. With better executive training, more generous rewards for talented men, and continued emphasis on the individual pride of accomplishment that has traditionally attracted U.S. businessmen to independent companies, most small-business leaders today are confident that they can outperform, even outgrow the biggest companies in the U.S. As one vice president said at a small-business seminar in Manhattan last week: "My company's bigger now than G.M. was 40 years ago."

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