The Cantillon Effect describes the phenomena that benefit those closest to money printing. Larger institutions, banks, organizations and companies are closer to the money. Larger groups representing many coordinated interests are also closer to the money.
What are SMEs, small and medium-sized enterprises? Small businesses are typically defined as organizations with fewer than 100 employees; Medium-sized companies are organizations with 100 to 999 employees. According to the Small Business Administration (SBA), SMEs employ 47.1% of all private sector employees.
There is another level of business defined by certain states or organizations. A micro business employs 10 or fewer people and in some cases makes less than $250,000 a year and in other cases a maximum of $500,000 a year. Most companies are.
These businesses are an important part of your downtown and local community. These businesses include our local pub, our local retail store, your local restaurant, auto repair shop, hardware store, florist, flooring or lighting store.
Whether it’s the number of employees or annual revenue, what makes or breaks a company is the difference between income and expenses. Too much red ink and business dies. The goal is to have more income than expenses. Most of the expenditure usually consists of capital goods, storage costs and wages.
Numerous people have written about how inflation has a larger and more damaging effect on those with lower wage levels. We have seen that clearly in the last 20 months.
Inflation will also often have the biggest impact on smaller companies. What is needed is something to counteract the effects of inflation.
These smallest businesses need Bitcoin the most.
Some of the reasons why inflation is affecting these smallest companies the most:
1. Economies of scale. Larger companies often benefit from economies of scale – if you buy more, you get discounts. The smallest companies do not have this advantage.
This means that the smallest companies are hit hardest by inflation and will either have to raise their prices or potentially lose money as a result.
Raising prices to compensate for higher costs can also lead to lost orders – often to larger companies – and thus to losses.
2. Wages. In the face of inflation, companies need to raise wages. As the smallest companies face size and cost issues, raising wages is more difficult. Big companies are able to offer higher wages and pass that increase on to a much broader customer base.
This can then affect their ability to attract labor and thus affect their ability to be productive and provide services to their customers. There was and is a war for talent.
3. Vulnerability to downturns. Small and medium-sized businesses can be more vulnerable to economic downturns.
According to a recent Brookings report, SMEs were responsible for over 60% of job losses during the 2008 recession. Additionally, the same or worse is expected due to the impact of COVID-19.
Job loss can be taken as an indicator of lost sales if the company cannot maintain its previous level of employment.
4. Inability to manage technology changes or supply chain disruptions. In a locked economy, who will have the technology to get online quickly? It is most likely the larger half of SMBs or large corporations that have the resources and scalability to implement online software.
In the event of a supply chain disruption, who do you think will get the last or late delivery? It is the smaller and smallest buyers.
The smallest companies were even last in line for COVID-19 relief loans, granted to temporarily ease the economic slowdown for many businesses.
5. Risk of Default. There are many different reasons for small business failures. The loss of business is certainly a big factor, according to a New York Fed newspaper. And you can’t do business without being able to get mandatory consumables for your business.
If we can read the tea leaves of past crises and the impact on the smallest SME companies, according to a St. Louis Fed report:
“During the Great Recession, very small businesses closed almost twice as fast as the economy average. They also saw a much larger drop in sales if they survived. But even very small businesses with relatively higher turnover did not have a lower exit rate.”
The numbers from the last major crisis do not bode well for the smallest company amid the COVID-19 crisis.
The smallest businesses are part of the individualistic and sovereign heart of every community, and we have seen far too many go under in this pandemic. And as mentioned above, with so many Americans employed in these types of businesses, it is imperative that they remain viable for the security of our economies and the vitality of our communities.
As an inflation hedge, could Bitcoin’s rising value help other smaller businesses survive and start new ones and grow?
Yes, we believe so.
This is a guest post by Mark Maraia, Heidi Porter, and Colin Crossman. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.