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ABOUT THE AUTHORS
Barry Stein is Associate Director of the Center for Social and Evaluation Research at the University of Massachusetts in Boston. His past experience includes 15 years of industrial consulting, both as a senior staff member of a large firm and as president of his own company. He holds a Ph. D. from the Department of Urban Studies and Planning at the Massachusetts Institute of Technology and has held teaching positions at M. I. T. and the University of New Hampshire. He is particularly interested in the development of alternatives for the economic organization of society, especially those alternatives based on stronger and more autonomous communities.
Mark Hodax is currently a doctoral candidate in the Department of Economics at Boston University and an instructor in economics at Middlesex Community College. He holds a Master of Business Administration in finance from Boston University and a Bachelor of Arts in economics from the University of Michigan.
The Center for Community Economic Development (CCED) is an independent research group located at 639 Massachusetts Avenue, Cambridge, Massachusetts 02139. Its primary function is to conduct public policy research by examining the ongoing problems of community development corporations (CDCs) and of other community-based economic organizations. and other similar community groups are instituted and controlled by local residents to improve the economy of their home areas. The central aim of these organizations is to increase the participation of their constituents in the nation's economic, social, and political life. R & D activities at CCED are designed to support that goal.
CCED also maintains a library, acts as a clearinghouse for materials and information on community-based economic development, and provides advocacy services related to its research. The work is supported by a grant from the federal Community Services Administration, as well as by other government and private funding sources.
The opinions expressed in this paper and all other CCED publications are those of the authors and should not be construed as representing the opinions or policy of any agency of the United States government. A complete list of publications is available upon request.
4. STATEMENT OF CARTER HENDERSON BEFORE THE SENATE SELECT COMMITTEE ON SMALL BUSINESS, DECEMBER 3, 1975
Hearings before the Select Committee
STATEMENT OF CARTER HENDERSON, CODIRECTOR, THE PRINCETON CENTER FOR ALTERNATIVE FUTURES, INC., PRINCETON, N.J.
Mr. HENDERSON. My name is Carter Henderson, and I am codirector of the Princeton Center for Alternative Futures, Inc., an independent, deliberately small think-tank for exploring the future of industrial countries in a planetary context of human interdependence.
I have been an editor of the Wall Street Journal, an executive on the corporate staff of IBM, and a founder of the Interracial Council. for Business Opportunity which has been helping minority group people get into small business for themselves since 1963.
I am also a director of the Minority Equity Capital Co. — a MESBIC-which is investing several million dollars provided by the Metropolitan Life Insurance Co., the Ford Foundation, the Small Business Administration, and others in minority group enterprises.
The subject of these hearings is "The Role of Small Business in Our Society." We, at the Princeton Center for Alternative Futures, believe American small business has a vital role to play in our society at this critical juncture in its evolution.
To be specific, we believe the United States is now going through an economic transition from material abundance to increasing scarcity which cannot be reversed by traditional economic remedies such as Keynesian deficit financing, or even a direct attack on structural unemployment.
We are approaching the point, it seems to us, where American private enterprise itself must begin to create more of the new modes of production and employment required to meet the needs of tomorrow's less affluent society.
We believe small business can play a unique role in getting the country through this cultural transformation safely and democratically.
And for the purposes of this statement, we would like to expand the term small business to embrace self-employed individuals, profitmaking corporations with annual sales of under $22 million, and selfhelp cooperatives.
Between them, these small enterprises probably include more than half the adult population of the United States, so we are dealing with a large and important segment of our society.
For roughly 200 years. from 1630 to 1830, ours was a small enterprise economy where production was the responsibility of the cobbler, the blacksmith, the liveryman, the seamstress, the farmer, the printer.
Then, during the Age of Jackson, we began to change into an industrial society where large agglomerations of capital, raw materials and men were brought together to make the steel, build the railroads, and generate the power a growing nation needed to conquer its western frontier and erect its great cities.
By the end of World War II, production was firmly in the hands of large-scale industry, and the individual was increasingly thought of not as a producer, but as a consumer.
We even began to believe-encouraged by Keynesianism-that if we would only work harder at consuming we might be able to enjoy rising material abundance forever.
These were the go-go years of the fabulous fifties, the soaring sixties, and the beguiling vision of a "post scarcity" society where an automated industrial megamachine would handle production while we the people, devoted our energies to consumption, leisure, and the pursuit of knowledge.
When the economy stumbled into a slump, as it did from time. to time, we were admonished to do our duty as consumers with ringing phrases such "You Auto Buy Now," or as 1976 approaches "BuyCen
We are now emerging from this era of childlike faith in mass consumption made transiently plausible by a confluence of events which are unlikely to reoccur for a very long time to come-if ever.
During the postwar period, American industry was able to more than treble its output as measured by the Federal Reserve Board's index of industrial production which rose from 35 in 1946 to 124.8 in
This remarkable feat of production was in large part made possible by cheap and abundant capital, cheap and abundant raw materials, the existence of a free societal dumping ground for industrial wastes and mistakes, and a constantly growing world market fueled by debt which in the United States alone soared from $400 billion in 1946 to $2.5 trillion in 1974.
In the past few years, as you know, these hothouse economic conditions have begun to cool.
Capital has become expensive, its supply relative to need severely limited, and its productivity has started to plummet.
Business Week recently estimated that the United States will need to raise $4.5 trillion in new capital in the next 10 years, or nearly three times the amount raised in the decade just past.
"The obstacles to raising that kind of money," concludes the magazine, "are formidable perhaps insurmountable; making the U.S. economy a tough place for anyone, individuals and giant corporations alike, to make a living."
The cost of petroleum, the world's most important raw material, has quintupled in the past 2 years and will continue to rise as the Organization of Petroleum Exporting Countries move to offset the declining purchasing power of Western fiat currencies including the dollar. And as other resource-rich countries rush to emulate OPEC's astonishingly successful cartel-pricing blitzkrieg.
A torrent of new legislation from the Clean Air Act to the Consumer Product Safety Act is forcing industry to accept economic responsibility for its pollution, unsafe products, manufacturing haz
ards, and other harmful acts whose costs had formerly been subsidized by society at large.
And the glittering world markets of the 1950's and 1960's have given way to the worst recession in 40 years from which the industrialized nations of the West and Japan have not yet emerged.
The symptoms of this recession, like others before it, are being treated with remedies compounded by John Maynard Keynes.
What this amounts to, of course, is the creation of Government deficits in order to put more money into the hands of consumers.
In the best of all possible worlds, this revs up the Nation's economic engine, industry increases production, and unemployed people get called back to work.
Keynesianism is really the only important medicine for curing recessions that Government has received from economists.
Up to now, the Keynesian cure has worked as well as could be expected even though we have had to pay a socially debilitating price in inflation, sharply rising Government debt, and structural unemployment.
The current recession, however, has responded sluggishly to massive Keynesian deficits. To make matters worse, this recession has combined economic slump with rising inflation to produce a new phenomenon called slump-flation.
If recessions are becoming resistant to consumption-stimulating Keynesian deficits, as we suspect they are, then the Government's fall-back position is probably a direct attack on structural unemployment along the lines of the Humphrey/Hawkins full employment and economic opportunity bill.
One of the troublesome questions raised by any assault on hardcore unemployment, of course, is how many new jobs must actually be created?
Is it the Labor Department's 8 million, or is it closer to the Urban League's recently projected 16 million?
Whatever the answer, it seems clear to us that our highly industrialized economy dominated by giant corporations will find it more and more difficult to maintain current employment levels-let alone create millions of new jobs-in an era characterized by soaring resource costs and declining effective demand.
What then is going to take up the slack? We believe it could be small enterprise with its historic emphasis on people as producers rather than consumers, and its proven flexibility in meeting new Societal demands quickly and effectively.
Small entrepreneurs have always been on the cutting edge of change. Today, it is primarily small business that is pioneering cheap and limitless energy from the Sun and wind, biodynamic farming to significantly raise agricultural yields, intermediate technology to bring cheap productivity-raising methods and equipment to poor people around the world, and self-sufficiency stores where people can buy the basic goods they need to survive from seeds to woodburning
Survival skills and resources, by the way, are of transcendent importance to thousands of enterprising young people who see their future in terms of lifeboat economics.