Focusing on size

The public (and policy makers) focus on size of businesses.

Everyone loves small firms. Yet, this enthusiasm is misplaced.

Generally, people dislike and distrust big business. In Ontario the Legislature bowed to demands of the NDP and voted to greatly increase the tax on those earning big salaries who presumably served as proxies for large companies, one way or another.

The bailout measures instituted last year to help large corporations and banks who were “too big to fail” sparked an enormous amount of resentment by youngsters and was a plank of the “Occupy Wall Street” movement.

Big retailers such as Wal-Mart have been castigated for squeezing suppliers. As a rule, big businesses never would win a popularity contest.

One of the reasons for embracing small firms is that they create more jobs than big ones. The connection between small firms and jobs depends almost entirely on new start-ups, which almost without exception begin as small organizations, and hence, clearly create employment because they did not exist previously.

It is noteworthy that a recent analysis of businesses south of the border revealed the connection between company size and increases in hiring disappears after taking into consideration the size of the business.

Politicians like to make an effort to promote/defend the small companies. However appealing it is to embrace the little business operations, that clashes with the economic facts of life. The big firms usually are more efficient, can offer better wages and, consequently, pay more in taxes than small counterparts because they simply earn more money.

It cannot be denied that some large companies are sluggish, prove to have unmanageable operations in many cases, are beset by ridiculous regulations, and too frequently fail to keep abreast of changes.

On the other hand, it should be noted big firms obviously can realize economies of scale. The large supermarkets offer a wider range of goods at low prices than a small, local outlet.

Too, while sometimes big companies have ignored innovation (IBM turned down an offer many years ago to acquire Xerox), large staffs are likely to develop something new and worthwhile.

 Governments, instead of catering to the small businesses, should concentrate on making it easier for all firms to expand – eliminating restrictions and red tape for all.

It is worth noting that small enterprises abound in backward nations, while the bigger enterprises appear to thrive in the more prosperous regions.

Thus, there should be more emphasis on growth instead of the size of the company involved.


Bruce Whitestone