This, in turn, has given birth to a new genre of fast-growing publications such as the Whole Earth Catalog, Mother Earth News, Organic

Gardening, and Prevention.

Small enterprise is also considerably more labor-intensive than big business which prides itself on constantly raising its productivity by substituting scarce and costly capital and energy for abundant and

economical labor.

The IRS encourages this practice through the investment tax credit, some of us are beginning to wonder why this tax incentive although should not go to companies that put people to work directly.

A recent study by three professors at the University of Wisconsin concluded that total employment in the United States would have been nearly one-half percent to 1 percent higher in the years 1962 to 1971 if the Government has used employment tax credits rather than investment tax credits to stimulate business.

It is also worth noting that unit labor costs are now lower in the United States than in any other major industrialized country and will continue to be so throughout the 1980's according to a new study by Chase Econometrics, a subsidiary of the Chase Manhattan Bank.

Small enterprise, because they are labor-intensive, do not require large amounts of valuable resources to either enter business, or remain in business.

This makes them more ecologically compatible than larger resourceconsuming industrial corporations. It also means they are more pluralistic, diverse, and adaptable thus reducing our economy's current structural inflexibility.

Small enterprises are also benefiting from the trend toward regionalism which has been speeded up by the recent quintupling of petroleum prices.

While giant manufacturers still enjoy significant economies of scale, this advantage is now being whittled away by the soaring cost of trucking their goods to distant markets more efficiently served by small local producers.

A good illustration of this can be found in Great Britain where smaller brickyards are being revived now that the country's huge central yard can no longer serve its more distant customers at an adequate profit.

Finally, small enterprise allows people to create their own jobs rather than wait around in the hope that large corporate employers will offer them work to do. They can paint houses, open restaurants, produce handicrafts, make clothes, or start farms-all on their own initiative.

Within the confines of our economic system, small enterprise is really the unwitting employer of last resort. When a titanium stress engineer loses his job in the aerospace industry he may find transitional employment as sexton of his church.

When young people are turned away from corporate employment offices, as they are today in disquieting numbers, they may support themselves by making leather belts, handbags, or jewelry and selling them on city street corners; or in the case of youngsters trapped in the ghetto by getting into street hustles running numbers or peddling dope.

The other side of the coin is the use of small enterprise as a conduit for swapping labor for goods and services. We see this in urban foodbuying cooperatives where poor people earn cheaper groceries by purchasing food from wholesalers, trucking it back to their neighborhoods, weighing and packaging it, and delivering it to their neighbors. Karl Hess, citizen activist and tax resister, writing in the "New York Times Magazine," tells how he has turned to bartering as an enterprising way to meet many of his family's needs.

"The other day," he said, "I welded up a fishsmoking rack for a family in Washington, D.C. It will earn me a year's supply of smoked fish.

"At about the same time, I helped a friend dig a foundation. He will help me lay the concrete blocks for a new workshop.

"Part of my pay for a lecture at a New England college was the use of the school's welding shop, to make some metal sculptures. Three such sculptures have paid my attorney's fees in maintaining the tax resistance which is the reason barter has become such an integral part of my life."

One of the best known forms of citizen enterprise in America is volunteerism which is bound to grow as over-extended local governments slowly devolve taking public services with them.

Americans who have manned their local volunteer fire departments for 2 centuries are now volunteering to work in their local libraries, playgrounds, even their public schools rather than see these vital services reduced.

So, we think small business, or small enterprise as we prefer to call it, does not have an important role to play in our society.

We think American small enterprise deserves all the support we can give it. In some cases, small entrepreneurs, will make their own needs known as the cooperative movement is doing in its effort to get new legislation passed to create a National Consumer Cooperative Bank to provide urban co-ops with the same kind of financing and related services so long available to rural and farm cooperatives.

In too many cases, however, small entrepreneurs have not been able to express their needs because they lack a national voice comparable to the associations, chambers, and institutes which so effectively advance the cause of big business here in Washington and elsewhere.

I would like to conclude with this observation.

For thousands of years, power in society was bound up with the land. Over the past 2 centuries, however, power has migrated from land to capital.

Today, with capital unable to meet the rising demands being placed upon it, and with the structures of large capital-intensive organizations devolving, power in our society may again be in transition.

John Kenneth Galbraith, in his book "The New Industrial State" published in 1967, proposed that power has already passed to an "association of men of diverse technical knowledge, experience or other talent which modern industrial technology and planning require" that he calls the "technostructure."

We are not convinced that power in American society is migrating to any one factor of production including Professor Galbraith's "technostructure."

We do not believe that power is migrating at all, but rather that it is melting, and as it melts conferring its energies on many alternative modes of human organization of which small enterprise is in

the vanguard.

How well small enterprise will seize these new opportunities for initiative in the coming economic transition remains to be seen.

Senator NELSON. Thank you, very much, Mr. Henderson. Mr. Gordon, did you have some questions? Go ahead.

Mr. GORDON. On page 4, you say that capital is becoming expensive, that its supply relative to needs is severely limited, and its productivity has started to plummet?


Mr. GORDON. Yesterday, one of our witnesses, Dr. Barry Stein, stated that the ratio of net benefits to assets employed falls as size increases; in other words, small firms use their capital more efficiently than large firms by about 20 percent.

Now, since capital is becoming increasingly scarce, isn't it society's responsibility that capital should be used most efficiently?

Mr. HENDERSON. Well, yes it is. The question is how do we accomplish that?

Mr. GORDON. Doesn't it mean that we should take vigorous measures to discourage the growth of large firms and try to encourage the disaggregation of existing large firms?

Mr. HENDERSON. In my opinion, yes.

Mr. GORDON. Now, since capital is becoming more expensive, do you think it a good idea, to shift to more labor-intensive methods of production than we have in the past?

Mr. HENDERSON. I certainly do. I think everything should be done to encourage job creation as opposed to automation.

I think we are beginning to recognize the fact that when you replace people with machines, you don't increase productivity.

You may increase the productivity of the corporation making that switch but you decrease the productivity of society at large because they must absorb those individuals that were formerly employed and maintained by the company.

So, what for one is an increase in productivity; for another, is still a decrease.

Mr. GORDON. Having been a businessman, what is your response to those in the business community who argue on behalf of a 70-percent investment tax credit, who argue that our capital investment ought to be larger; that in other countries, for instance, Germany and Japan, some of our competitors have invested more, made more capital investments to more modern technology and so forth.

Therefore, they say, we need to restructure our tax system to produce more of that kind of investment activity in this country, so we could more effectively compete.

What is your response to that?

Mr.. HENDERSON. My feeling is that we must look at what we are trying to do and in my opinion, what we are trying to do is create jobs, opportunities for people to work.

I think large corporations should be forced to justify their need for additional precious capital on the basis of the new jobs it would create, or the existing jobs in promising areas it would protect.


[From The Wall Street Journal, Nov. 13, 1975]


(By Irving Kristol)

It was about a hundred years ago that the American social theorist William Graham Sumner coined (or popularized) the phrase, "the forgotten man." He was referring to the average taxpayer, not poor enough to be the object of official compassion, not rich enough to remain basically unaffected by official depredations. There never was any popular animus against such a person; the political process simply ignored him, even as it afflicted him.

The phrase caught on, and those of us of a certain age can well remember the standard cartoon, on the editorial pages of the more conservative press, in which a naked John Q. Citizen, his nudity concealed only by a barrel, pathetically clutched the last few dollars of his after-tax income and desperately pleaded that attention be paid to him.

During the years of the post-war boom, 1945-65, this image rather faded from the popular imagination. Taxes grew steadily in this period, to be sure, but incomes rose even faster, and the average citizen was not perceived to be suffering much, nor did he himself seem to feel any particular distress. In the late 1960's, of course, all this began to change, as inflation took hold, economic growth slowed down, and the spirit of a taxpayer's rebellion began slowly to intrude itself into the political consciousness. The average taxpayer, a relatively small minority of the population in Sumner's day, is now the overwhelming bulk of the citizenry. He may remain, in 1975, an unduly afflicted being, but no one can say that he has been forgotten. The level of taxation has become a major political issue, which even the most spendthrift of politicians has to take account of.

Meanwhile, however, a whole new class of forgotten men has emerged. Like his counterpart of yesteryear, today's forgotten man is-if the opinion polls are to be believed-a fairly respected and wellregarded citizen. No one is leading a crusade against him, and it is probable that no one really wants to. He is merely being chided, harassed, ruined, and bankrupted by a political process that takes him for granted and is utterly indifferent to his problematic condition. I refer to the small businessman.


It is astonishing and dismaying how little interest there seems to be in the condition of small business in the United States today. Big busi

ness is in the spotlight to such a degree, and is the focus for such passionate concern (pro and con), that the smaller businessman is an invisible figure, offstage somewhere.

One can understand why and how this has happened. Big business is certainly far more important today, economically and politically, than it ever was. Economically, because the overall health of the cconomy, in terms of investment, economic growth, employment, hinges very much on the health (or lack thereof) of big business. Politically, because the struggle for control over the decision-making process of the large corporation-which is what "regulation" is all about-will certainly have a profound effect on the ultimate status of the private sector vis-a-vis the political sector, in our still-mixed economy. Both our collective prosperity and individual liberty, therefore, are very much at issue in the current controversies over the ways in which big business should be organized and operated.

But if small business is of lesser economic significance than it used to be, its economic role is still terribly important. And the fact that the future of the large corporation involves the future of our private sector should not obscure the more basic fact that small business preeminently is the private sector.

Economically, small business plays a critical role in the process of innovation. When one surveys the new products and new processes of the past 25 years, it is extraordinary how many of them were introduced by aggressive entrepreneurs or smaller business firms. The Xerox copier, the Polaroid camera, the mini-computer, high-fidelity recordings, frozen foods, wash-and-dry clothing, and so forth-the list is long and impressive. Nor is it only product innovation that small business is so good at. It also rates high marks for conceptual innovation, for coming up with a new way of organizing older services. Containerization; the discount store; the motel; franchising the sale of hamburgers, fried chicken, and other food products-these, among others, were ideas in the head of an individual that proved fruitful and beneficial because our economic system permitted them to compete with existing ideas as to how things should be done. Obviously, not all the innovations of entrepreneurs succeed; indeed, most of them fail, as they are bound to, in high-risk, high-payoff situation. But this brash willingness to risk failure is itself one of the major merits of a system of "free enterprise".

The large corporation may be the end-product of "free enterprise" but it is not its quintessential representative, either in theory or practice. It is true that, in the United States as compared with the Soviet Union, the large corporation is relatively innovative, does preserve an entrepreneurial aspect. (To the degree that Government gets involved in decision-making, it is always the avoidance of risk that will take priority.) But even at its best, the large corporation will never be as enthusiastic about innovation as its tiny competitors. It has a huge investment in existing products and procedures that it would prefer not to write off too quickly. It usually makes more economic sense for it to seek the marginal improvements in productivity rather than to concentrate on a new product that may or may not sell, or a new process that may or may not work. And its vast bureaucracy is always, to some extent, a conspiracy against innovation: Layer upon layer of ex

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