Big Is Beautiful

Small business may be beautiful, but it’s neither productive nor prosperous.

I’ve been suspicious for years about the hullabaloo from both
Republicans and Democrats that small businesses are the drivers of the
economy. It has crossed my mind on numerous occasions that this is
merely a political calculation. There are hundreds of thousands of small
business owners and they vote for tax and business policy issues.
Furthermore, the small business lobby is very powerful.

But if you’re an HR person, I suspect you know the truth. Big business is the driver of the American economy. Not small business.

Think about it. If you really want an HR job (or any other function)
so that you can learn the business, your first stop is at a large firm.
The majority of small firms don’t even have an HR position. The office
admin takes care of those matters. Don’t be too quick to occupy Wall
Street. Just make sure the government gets it under control. That is, if
you want a growth opportunity in HR or most any other function, and
your name is not Zuckerberg. So make certain your crap detector is
working the next time you hear all the bullshit about small businesses
from the politicos and us small business owners. This is not a simple,
straightforward issue. It’s highly nuanced, covert and subtle politics.
Better reframe your mindset about big business—and small business!

He didn’t lay out the statistics, but James Surowiecki
added a lot of information to the subject in a recent article,
beginning with the fact that Americans have always been ambivalent about
big business. Take the grocery business. In the first 50 years of the
20th century A & P was the biggest and most important
chain store. My family like most, enjoyed the low prices. But those low
prices came at a cost to the small grocer. Until 1936 and the
Robinson-Patman Act, suppliers could offer chain stores better deals
than other retailer. That congressional act made it impossible for
suppliers to legally provide the chains with better deals. The result,
of course, was that prices increased for the public at large. In other
words, it wasn’t consumers the government was trying to protect—but
small business.

The global meltdown has surfaced still another intriguing insight
about small businesses. The developed countries with the highest
percentage of workers employed by small business are Greece, Portugal,
Spain and Italy. Guess whose economic woes are wreaking the most havoc
on financial markets. And guess which countries have the lowest
percentage of workers employed in small business—Germany, Sweden,
Denmark, and the U.S.—some of the strongest economies in the world. This
is an intriguing set of correlations.

In his article, Surowiecki ticked off the economic advantages of big companies:

  • Significantly higher productivity growth
  • Economies of scale and scope
  • Ability to invest in productivity-enhancing technology
  • R & D spending

It has been ever thus.

In a new book, Marc Levinson shows that A & P, like the future
WalMart, was able to invest in its own warehouse-and-delivery system,
improve inventory management and make the supply chain more efficient.
All investments not possible for the small business.

So why do people like me go into business? Well, as a recent study by
Erik Hurst and Benjamin Pugsley shows, we have no interest in becoming
big-business owners or even in bringing a new idea to market. Instead,
most of us simply want to run a small company, do work we enjoy and have
control over our financial lives. In commenting on these small business
ideologies, James Surowiecki concludes his article with this:

Those are admirable goals, but they’re
not going to make companies more productive. And that matters, because
greater productivity is the main driver of long-term economic growth
and higher living standards. Because big companies are more productive,
they offer workers, on average, better wages and benefits—or, as in
the case of Walmart, they offer consumers significantly lower prices.
And the impact of these things on living standards is not trivial. It’s
hardly a coincidence that in the decades after the Second World War,
when ordinary American workers became part of the middle class, very
big companies employed a huge percentage of the workforce: in the early
seventies, one in five non-farm workers worked for a Fortune 500
company. Small may be beautiful. It’s just not all that prosperous.

And in a parting shot, Felix Salmon says it’s start-ups that create jobs and that the lionization of small businesses is “unhelpful.”

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