They're feel-good little pockets of the economy, which is why dopey politicians are quick to sing their praises. And they do create the most jobs. But that's not the same as being a real driver of growth, as the New Yorker's James Surowiecki points out:
One can see this by looking at the track record of the world's economies. The developed countries with the highest percentage of workers employed by small businesses include Greece, Portugal, Spain, and Italy--that is, the four countries whose economic woes are wreaking such havoc on financial markets. Meanwhile, the countries with the lowest percentage of workers employed by small businesses are Germany, Sweden, Denmark, and the U.S.--some of the strongest economies in the world.
This correlation is not a coincidence. It reflects a simple reality: small businesses are, on the whole, less productive than big businesses, and though they do create most jobs, they also destroy most jobs, since, while starting a business is easy, keeping it going is hard. This is true around the world. A recent study by the World Bank that looked at ninety-nine developing countries found that large firms had significantly higher productivity growth. And in the U.S. the connection between size and productivity is, as a 2009 study showed, especially close. In part, this is because big businesses are able to enjoy economies of scale and scope.
Perhaps the biggest explanation is that very few small business owners have any interest in becoming big business owners. They're in it for other reasons - financial independence, working in a field they enjoy, whatever. If you stay small, chances are you won't keep hiring.