Micro-businesses and Their Effect on The Economy

A microbusiness is one wherein there are 1-9 people employed annually and make under 250,000 dollars a year. The microbusiness or ‘hustle’ culture almost exploded after the market crash of 08. The crash left many people without jobs or sources of income. This led to people trying to start new streams of income so they looked to stocks and business ventures as ways to make sure they were never left as badly as the crash. Most people start a business not because they want to but because they need the money. They need the ‘fast easy’ money that is plastered all over the internet about how great starting a business is. However, not everyone is an entrepreneur. 627,000 new businesses are opened each year with only 25% of them making it past the first 15 years. So what exactly is the problem with these businesses?

Microbusinesses play a crucial role in our communities but more for the consumer than any other party. Microbusinesses that specialise in just one good can buy in bulk from offshore factories then sell it for a lower price than most monopolies would. Fewer monopolies in the economy are good because it puts more price control in the hands of the consumer. Consumers want quick and cheap products which they can get rather easily from microbusinesses who only sell a few variations of that one product. People are drawn to these businesses as they are sometimes the most convenient option when they are compared with other shops. The difficulty with being able to enter the market easily is that everyone tries to enter it. This means hundreds of businesses all selling the same goods which were bought from the same factories and are almost homogenous. The lack of barriers to entry, and consumers determining market value is awfully synonymous with perfect competition.

The real problem with an increase in a rapid increase in microbusiness is laziness. A lot of people open these small businesses because it’s a simple way to get money. They view these businesses as getting rich quick schemes because it is so easy to order enormous amounts of pre-made goods from Alibaba corporations. They buy them for low prices and sell them for more that is still cheaper than the market price, ensuring their profitability. Consequently, this can create a feedback loop of just reselling on reselling. This is the reason just 25% of these businesses make it long term. Sure they work for a little while but they could potentially ruin the market for everyone else. The more supply of a product is in the market, the less demand for the good exists. Humans want something less the more available it is. An increase in micro-businesses at any one time can cause an explosion in the demand for that good which subsequently reduces the demand for that good which in turn reduces the price of that good. This is as consumers can determine the market value of the good.

Micro Businesses do affect different markets differently. This is because it mostly depends on the type of good that is sold and who the target population is. For example, a rapid increase in businesses in the luxury clothing sector will not affect the demand or price of the goods because though the supply will increase, consumers are already associated with certain brands so will be less likely to switch to the cheaper option. But an increase in businesses that make subpar jewellery will affect the demand and price as consumers aren’t looking for brands, they are looking for certain goods and will most likely go towards the cheaper option. This forces the market value down because consumers flock to the cheaper option. To sell these goods for so low, businesses will need to cut production costs so they can remain profitable which leads to less standardisation of goods in the market so some of the goods can ruin the reputation of the good.

So are microbusinesses inherently bad?

No.

Not all businesses are just formed as a way to accumulate wealth, some people actually start these businesses out of pure entrepreneur passion. This trend in demand and supply due to the rapid increase of microbusinesses is very interesting to note.

By Emmanuella Erhunmwunsee