Title: Big Is Beautiful: Debunking the Myth of Small Business
Author: Robert D. Atkinson and Michael Lind
Scope: 3 stars
Readability: 4 stars
My personal rating: 4 stars
See more on my book rating system.
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Topic of Book
The authors take on the widely-held belief that small business is better than Big Business. They argue that big businesses are better than small businesses by almost every measure.
- Big businesses are far more important to national and regional wealth than small businesses.
- Vast majority of small businesses are virtual copies of other businesses that have little chance of growing rapidly: restaurants, laundrymats, pizza parlors. They rarely innovate new technologies or business practices
- These small businesses are highly dependent on the income generated by large businesses located in the area.
- The small businesses formed by entrepreneurs around a new technology or business model with the intention of growing rapidly are completely different. The extent to which they are able to grow to big businesses are vital to economic growth.
- When a nation or region has a high proportion of small businesses and self-employed, it is usually a sign of poverty.
- By almost any measure, big businesses are better than small businesses:
- Higher wages
- More generous and comprehensive benefits
- Less likely to hire and fire employees quickly
- Fewer injuries
- More innovative
- Far greater levels of foreign exports
- Less likely to discriminate based upon race or gender
- More likely to adopt environmentally-friendly practices
- More likely to contribute to charity
Important Quotes from Book
“Small is beautiful. And big is bad. That is the consensus shared by Americans across the political spectrum, from the anticapitalist left to the libertarian right.”
“Today’s widespread megalophobia (fear of large things) can be dated back to the 1970s.”
“economic policies, including taxation, regulation, and spending, are systemically biased in favor of small firms in most nations around the world”
“we believe that in a modern capitalist economy, businesses of every size, along with government agencies, research universities, and other nonprofit organizations, play essential roles. ”
“Small businesses create many jobs but they also destroy many jobs because most small businesses fail. Virtually all big firms are more productive than small ones—that is why they got big and that is why they pay their workers more. Only one particular kind of small firm contributes to technological innovation, the technology-based startup, and its success depends on scaling up, either on its own or in affiliation with large corporations, which are themselves extremely innovative because they can marshal the resources needed to invest in innovation.”
“Why, then, is small business the most sacred of sacred cows in the United States, and other nations as well?
The cult of small business in America can be attributed to two schools of thought—producer republicanism and market fundamentalism. Producer republicanism, which holds that a republic must rest on a majority of self-employed small farmers and small business owners, is a relic of the Jeffersonian agrarian republicanism of the preindustrial era. Producer republicanism has been anachronistic for more than a century,”
“The small business cult is also reinforced by market fundamentalism. Market fundamentalism assumes that all markets are naturally competitive markets atomized among many small firms, in which competition, in the absence of government favoritism or business cheating, would soon whittle down any firm that temporarily got bigger than the rest.”
Excerpt From: Robert D. Atkinson & Michael Lind. “Big Is Beautiful.” iBooks. “We conclude by calling for size neutrality in government policies toward business—including in taxation, financing and subsidies, procurement, and regulation—combined with a focus on new high-growth business, not small business, that is, on dynamic startups that can transform the economy, not on small businesses whose owners do not engage in innovation and do not seek growth.”
“Our intervention in this debate is motivated by our conviction that boosting America’s economy-wide productivity makes all other public policies easier to achieve. The best way to boost productivity is to remove obstacles to the replacement of small-scale, labor-intensive, technologically stagnant mom-and-pop firms with dynamic, capital-intensive, technology-based businesses, which tend to be fewer and bigger. The current “small is beautiful” belief, held by both sides of the political aisle, represents a major barrier to that necessary and beneficial reallocation.”
“What made America rich? Not markets alone, but the interaction of markets and machines… “Big business has flourished in the machine age because machines enabled economies of scale and scope.”
“Perhaps the greatest contribution of the railroads to the growth of scale in American industry and commerce was their creation of regional and national markets. Before the railroad, almost all firms were small because it was expensive to ship a product more than a few dozen miles and it was virtually impossible to provide a service that was not face-to-face.”
“In the aftermath of the canal and railroad bubbles of the 1830s and 1840s, which left many state governments with fiscal crises, American states followed the example of Britain in adopting “general incorporation” statutes permitting any eligible company to incorporate without any action by the legislature.”
“the first great merger movement of 1895–1904. In a single decade, 1,800 enterprises—most of them in the manufacturing industry—were consolidated into only 157 firms. By 1904, one or two giant firms, usually put together by merger, controlled at least half the output in seventy-eight different industries. In 1896 there were fewer than twelve firms worth $10 million; by 1904 there were more than 300.”
“Nor was this a phenomenon unique to the United States. History makes it clear that the simultaneous emergence of large industrial firms dominating the same sectors at nearly the same time in radically different societies can be explained only in terms of technological and organizational efficiency, not as a result of political corruption in particular countries”
“The reason is clear: new technology allowed establishments to grow to hitherto unprecedented size and drive down costs, put competitors out of business, and grow even more. The cost reductions resulting from large-scale factory and firm operations overwhelmed made-to-order and small-volume production in industry after industry, in country after country.”
“Because of machine-driven economies of scale, following the wave of consolidation in technology-based industries such as oil, steel, automobiles, and electricity between the 1880s and 1920s, the structure of the American economy was remarkably stable until the last quarter of the twentieth century.”
“ the history of developed economies is not a story of continual progress and stability but of successive waves of major innovations separating what economists in the tradition of Schumpeter call “techno-economic paradigms.” Early in the life cycle of a techno-economic paradigm, there are many small, innovative companies of the kind now called startups as entrepreneurs swarm to take advantage of the new technological opportunities.”
“As the techno-economic paradigm matures, the few firms that survive the savage Darwinian competition tend to prevail, and in many cases they stay on top for decades or generations. Markets become oligopolistic or monopolistic. Big firms focus on incremental improvements in the technologies or procedural innovations established in the earlier wave of breakthrough innovation.”
“ New business formation is not an end; it is a means. The end is more and better goods at lower prices for consumers, not maximizing the number of owners of small, inefficient businesses.”
“As Antoinette Schoar writes, It is crucially important to differentiate between two very distinct sets of entrepreneurs: subsistence and transformational entrepreneurs. Recent evidence suggests that people engaging in these two types of entrepreneurship are not only very distinct in nature but that only a negligible fraction of them transition from subsistence to transformational entrepreneurship. These individuals vary in their economic objectives, their skills, and their role in the economy”
“ starting yet another small bookstore or pizza parlor is not entrepreneurship; it’s small business. ”
“Poorly performing economies seem to have too many subsistence entrepreneurs and too few high-growth transformational entrepreneurs.”
“As Guzman and Stern note, the number of truly entrepreneurial, high-growth startups is a small fraction of the size of the number of startups overall. But despite their relatively small size, they play an oversized role in the economy in bringing new innovations to the market. For many of these startups either produce technology (e.g., Tesla) or use new technology to create new business models (e.g., Uber), or both (e.g., Google). This means that the rate of technology-based startups is in part a function of the overall rate of technological innovation. As Acs and Audretsch write, “Fundamental changes in technology often result in shifts in the firm-size distribution”
“Francisco Louçã and Sandro Mendonça studied the largest 200 manufacturing firms from 1917, 1930, 1948, 1963, 1983, and 1997, or a total of 543 distinct firms for the entire period. They found that only twenty-eight firms were present in all six years—“persistent giants… The persistent giants included such firms as Alcoa, Amoco, CocaCola, DuPont, Deere, Procter & Gamble, Ford, and GM. But more than half of firms appear only once.”
“Louçã and Mendonça found that peaks of firm entry into the top 200 are associated with periods of technology transition from one wave to another. It is during these transition points, marked by the emergence of combinations of radical innovations, that new technology systems replace older ones. ”
“Suppose that there is a size class of firms that outperforms another size class on virtually every indicator of economic and social performance, including job creation, wages, worker benefits and safety, environmental protection, productivity, workforce diversity, unionization, tax compliance, and business social responsibility. You might expect this size class to be embraced and favored by most people across the political spectrum. You would be wrong, because it is large firms that outperform small firms.”
“the facts are eminently clear that on virtually every measure, big business is superior to small.”
“Economic prosperity will be determined principally by large firms, not by small firms, and least of all by the vast majority of small firms whose owners do not intend them to grow beyond a few employees.”
“virtually every study shows that big firms pay more than small firms.”
“In the United States, workers in large companies receive 85 percent more supplemental pay (e.g., overtime and bonuses), 2.5 times more in the value of paid leave and insurance (e.g., health insurance), and 3.9 times more in retirement benefits (and more than 5 times more in defined benefit plan contributions) than workers in firms with fewer than 100 workers.20 For example, few small retailers match their employee’s 401k contributions, if they even provide plans.”
“large firms pay more because they are on average more productive.”
“The main reason that small businesses create more jobs is that they also destroy more jobs. ”
“while small firms account for 49 percent of US employment, they account for just 16 percent of business spending on R&D, while firms of more than 25,000 workers account for 36 percent.40 Likewise, small firms account for 18.8 percent of patents issued, while the largest firms account for 37.4 percent of patents”
“arge firms export more than small firms. A review of studies on the relationship between firm size and export intensity found that the lion’s share found a positive relationship.”
“A wide array of studies finds that large firms invest significantly more in pollution control than small firms, ”
“many small businesses that operate in substantial part on a cash basis, where the level of underreporting income can be quite high. ”
“small firms show less loyalty to their workers. One study found that both the quit rate and the dismissal rate of workers in German companies declined as firm size increased”
“Workers at smaller firms are more likely to be injured on the job.”
“Large firms also invest more in workforce training. ”
“With respect to racial and gender diversity, large businesses are more diverse than small,”
“of the largest 100 charitable foundations by assets in the United States, 78 were capitalized by individuals who owned or managed large corporations”
“large corporations tend to employ more middle-income workers, compared to either firms like investment banks at the top or small mom-and-pop companies at the bottom. As Gerald Davis writes, “Small is beautiful … if you love inequality.”
“metro areas that had higher per capita income growth in the prior year had more firm formation in the next year. In other words, firm formation was the result of growth, not the cause. And the cause often was the growth of large, export-oriented firms that brought more money into the local economy for spending on small, local dry cleaners, carpenters, and restaurants. In other words, large firms are the driver, small firms the result. ”
“most small business owners have no desire to grow their firms. Nearly three quarters of individuals who start a business want to keep their businesses small”
“Steve Jobs, Bill Gates, and others deserve credit for their brilliant success in commercializing new technologies. But most of those technologies had been invented in the laboratories of giant corporations, many of them working for the US military or civilian federal agencies on contract. The tech revolution of our time owes far more to teams of scientists and engineers working in well-funded corporate labs than to college dropouts tinkering in garages.”
“Modern economic progress depends largely on the commercialization of technological innovation that originates in systematic early-stage research. Since the nineteenth century, early-stage research has been undertaken chiefly by three types of institutions—research universities, government labs, and corporate research labs—and funded by two main sources—government spending and corporate profits. And in the last half century some high-tech startups, funded by venture capital, have played a key role as well”
“What if we told you that if we know a single statistic about a country, we can tell you whether its per capita income is in the top, bottom, or middle of global rankings? And what if we told you that, knowing only that one statistic, we could also guess with considerable accuracy what the country’s overall economy is like and even in what region of the world it is probably located?
There is such a tell-all statistic. It is the percentage of the population that is self-employed. The poorer a nation is, the more of its people are self-employed.”
“Self-employed workers amount to 7 percent of the workforce in North America and 10 percent in the European Union, 22 percent in Latin America and the Caribbean, 36 percent in sub-Saharan Africa, and 41 percent in Southeast Asia. The reason is simple: as a rule, the smaller the firm, the lower the productivity level.”
“High-value-added manufactured goods dominate the exports of countries with low levels of self-employment, while low-value-added commodities such as raw materials and agricultural products and services such as tourism dominate the exports of nations with high levels of self-employment.”
“Our argument in this book has been that the benefits provided by large, privately owned enterprises, ranging from contributions to technological innovation to the creation of well-paying jobs and increases in national and global productivity growth, will continue to make big business essential for prosperous societies. Each successive industrial revolution, from the age of steam to today’s information age, has enlarged the scale of dynamic and efficient firms in industries ranging from agriculture to manufacturing to services. ”
If you would like to learn more about how organizations helped to create progress, read my book From Poverty to Progress.