Sun & Shade

Snapping out of its September lethargy, the U.S. economy once again spurted ahead. From the Federal Reserve came the cheering news that the industrial production index had risen by more than one point in October, to 113.1% of the 1957 average, and record auto sales of 21,800 cars a day for the first ten days of November suggested that the rise would continue. Stock prices on the Dow-Jones industrial index reached new peaks on three successive days last week, hit an alltime high of 734.34 before simmering down to 729.53 at week's end. But while the nation's big businesses rejoiced in this burst of sunshine, a small Los Angeles retailer voiced a plaint from the shady side of the economic street. Said Max Goldstein, owner of a four-store shoe chain: "I think this 'recovery' is bypassing most of us small businessmen."

Selling Slower. Bellyaching may be a congenital disease of the small businessman, but the hard fact is that he is usually the first to feel the pain of recession and one of the last to enjoy the pleasure of recovery. In the first nine months of 1961, there were 13,000 business failures in the U.S., v. 11,500 in the same span a year ago --and virtually all of these failures occurred among the nation's 4,500,000 enterprises with capital assets of less than $100,000. Though there has been some recent improvement, small-business failures struck a 29-year high in August, and have been running consistently higher than in previous years. The trouble is usually attributed to undercapitalization. In a business dip, capital is to a business man what oxygen is to a submariner--and many small businessmen simply lack enough to stay alive.

Sluggishness in housing sales has hurt lumber dealers, whose failures are up 15% from a year ago. The rise of the discount house has led to a 14% increase in bankruptcies among Main Street haberdashers, and lagging sales of durable goods have spurred a 22% rise in failures of small fabricators of iron and steel. Hardest hit are wholesalers of all kinds, with failures up 23%, because more and more retailers are buying directly from manufacturers to "cut out the middleman."

The growth of automation is also hard on smaller businessmen: most of them cannot afford to buy automated gear, but they must buck the steadily lower production costs--and selling prices--of the larger operators who can. To copper their bets against gyrations in consumer demands, bigger companies are diversifying into retail areas that have long been dominated by smaller dealers, e.g., mail-order houses have begun to sell prescription drugs, supermarkets are selling hardware and garden supplies. And the increase of cut-rate imports hurts smaller, single-product businessmen more than those who market a broad line.

Running Faster. For all that, a well-managed pygmy can often move faster into new markets and offer better services than a giant can. Officials of the Small Business Administration blame shoddy management for most of the small-business failures. "The aggressive businessman isn't hurting," says Bill Gardner, an aggressive Los Angeles hardware dealer. "Those who sit and wait for business are likely to find themselves out of business."

But even for the enterprising small businessman, these are times when more than the usual amount of hustle is required. Sums up W. H. Magbee, head of Atlanta's Magbee Lumber & Supply Co.: "Our prospects are bright, and we're going to continue to grow. But I've got to buy bigger to be able to sell cheaper. I'm working harder and longer hours just to maintain my present position."

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