Big Business Risks Alienating Small Business by Shunning Tea Party Maintaining an alliance with small-business owners is in the best interests of big-business leaders. Instead, there is a fight brewing.

By Scott Shane

Opinions expressed by Entrepreneur contributors are their own.

Jim Bourg/Reuters

The Republican civil war that erupted over the Tea Party's disregard of big business's agenda threatens to turn (big) business brother against (small) business brother in the 2014 Republican primaries. That realignment may turn out to haunt establishment Republicans. Small-business owners aren't likely to abandon the Tea Party; and being stripped of small-business support isn't good news for the GOP establishment.

Big-business groups, including the U.S. Chamber of Commerce and the Business Roundtable, are planning to oppose several Tea Party Republican candidates in the 2014 GOP primaries. Big-business leaders are fed up with the tactics of conservative Republicans, who instigated a partial closure of the Federal government and engaged in brinksmanship over the debt ceiling in a failed effort to stop the implementation of the Affordable Care Act. The heads of big companies disagreed with this strategy, seeing it as a cause of reduced consumer confidence and a drag on economic growth.

However, turning on the Tea Party could hurt establishment Republicans' standing with small businesses. The Tea Party movement was started by small-business owners protesting high taxes and excessive government spending and borrowing. A 2010 TargetPoint Consulting survey found that 29 percent of active Tea Party members were small-business owners, a far higher share than found in the overall population.

Many small-business owners support Tea Party efforts to cut personal income-tax rates, reduce regulation, and stop Obamacare. Small owners' views put them at odds with big business. Seventy-five percent of small businesses are sole proprietorships, making their owners far more concerned with high marginal personal income-tax rates than with corporate-tax reform. They see the efforts of big business to get Congress to reform the tax code and cut corporate income-tax rates as a diversion from the Tea Party's fight to lower personal income-tax rates.

Small business also disagrees with big business on regulation. While most big-business leaders see rising regulation as a minor annoyance, many small-business owners see it as a huge burden. Because regulatory compliance is subject to scale economies, the per-employee cost of complying with Federal regulations is a far larger problem for small businesses than big ones. As a result, many small-business owners see the Tea Party as defending their interests against an overzealous government.

Perhaps most importantly, small business disagrees with big business on employee health insurance. The ACA has little effect on big business, 99 percent of which already offer employee health insurance that meets the standard of the new law. By contrast, the Kaiser Family Foundation reports that only 57 percent of companies with between three and 199 workers provide employee health insurance. To many small-business owners, the new health-care law is a major impediment to business success.

The Tea Party Republicans' efforts to repeal the ACA were driven in part out of concern for small business. In his marathon speech to the Senate calling for defunding the new law, Texas Republican Sen. Ted Cruz, made 86 references to small businesses, calling the new health-care legislation "an absolute disaster for small businesses."

By throwing their support behind establishment Republicans in their disagreement with the Tea Party, big-business groups are making it harder to claim that they represent the interests of all businesses, small businesses included. That may prove to be a bad strategy for establishment Republicans. A 2010 Pew Foundation survey revealed that 71 percent of Americans hold a positive view of small business, while only 25 percent hold a favorable opinion of large corporations. Similarly, a 2012 Public Affairs Council survey found that 53 percent of Americans have a "very favorable" view of small business and only 16 percent have a similar opinion of major companies.

I'm no political strategist, but I think that maintaining an alliance with small-business owners is in the best interests of big-business leaders. And picking a fight with the Tea Party isn't the way to maintain that coalition.

Scott Shane

Professor at Case Western Reserve University

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

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