The Small Biz Backlash Intensifies
I guess it had to happen. What with all the loving rhetoric being showered on entrepreneurs and small businesses as “job creators” and “engines of economic growth,” churlish types are now starting to question whether small business has really earned this kind of veneration.
Last summer, Time claimed the idea that "entrepreneurs are the foundation of the economy" was a “destructive myth.” The latest example comes today from The New Yorker, declaring that Big Is Beautiful -- because big companies are more productive, pay higher wages, and offer lower prices.
“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.”
Frankly, I’m not buying the correlation, or the evidence presented, but it doesn’t really matter because author James Surowiecki is missing the point.
No one is saying that big businesses don’t have value. Clearly, there are many undertakings that require the resources of a large organization. And there are many times when large organizations can do things more efficiently than smaller outfits. And certainly top execs at big companies make a lot of money – they’re the 1 percent we keep hearing about.
The real issue isn’t big vs. small. It’s new vs. old and growing vs. static. The bottom line is that entrepreneurs and new businesses are where almost all of the job growth comes from, almost by definition. It’s that early phase of fast growth that creates the vast majority of new jobs. Once companies reach a certain size, they simply can’t keep up their growth rates at least in percentage terms. Over time they often settle into a steady state of employment, or even decline.
If you, or James Surowiecki, is counting on Apple and Exxon to pull us out of the jobs doldrums, you can forget about it. They already have most of the people they need. If they do hire, they probably won’t do most of it in the U.S. And many other large employers have MORE people than they need.
As these giant companies continue to acquire each other instead of investing in their own growth, they become ever more concentrated and together employ ever smaller numbers of people. Sure, big companies may “offer workers, on average, better wages and benefits” but how much are those average skewed by the top brass making 300 times what lower level employees take home?
Instead, we need fleets of tiny new companies, all doing at least some hiring and many trying to become large companies. It’s that process that creates the jobs (and ultimately more of the big companies that Surowiecki loves so much).
Surowiecki says big companies also have more resources to drive innovation, particularly when credit is tight. But that’s an argument for fixing the credit markets, not dissing small businesses. Just as important, it ignores the role of technologies like cloud computing in giving small businesses the same world-class tools that big companies use – without all the legacy infrastructure that can hamstring older organizations.
To put a twist on James Surowiecki’s conclusion (“Small may be beautiful. It’s just not all that prosperous.”) big may be beautiful, but it’s no answer for what ails our economy.
