For Nell Abernathy and co-workers from the Roosevelt Institute firm size is “the product of distinct political and policy choices.” Barry Lynn, director of the Open Markets Institute, dismisses arguments and data about the superior efficiency of larger firms as “metaphysics.” Open Markets Fellow Matt Stoller, goes even farther, asserting a nefarious plot to defend business size, when he tweets, “I’m increasingly convinced the biggest con in business history is the notion of ‘economies of scale.” For these critics, the only way firms get big is by manipulating markets and crushing erstwhile competitors, all while being enabled by a captured government. Size doesn’t matter when it comes to business efficiency, does it?Ĭritics of big business have long argued that these firms are no more efficient than small firms. As economists Cohen and Keppler write, “By applying the fruits of their R&D over a larger level of output, larger firms not only have a greater incentive to undertake R&D than smaller firms but they also realize a greater return from their R&D than smaller firms.” Likewise, business professors Anne Marie Knott and Carl Vieregger find that the larger the firm, the bigger the bang for the R&D buck it gets.ģ. This is why small firms account for just 16 percent of business spending on R&D, while the largest firms (those with more than 25,000 workers) account for 36 percent.īig firms also are more efficient at translating research and development into innovation. ![]() Only a tiny fraction of the nation’s 6 million small firms patent or innovate. In fact, the top 1.5 percent of patenting firms, all of them large, received 48 percent of U.S. Apple developed the first smartphone decades after it was a Silicon Valley startup. Boeing, not a small company, developed the world’s first carbon fiber jet aircraft, the 787. The entrepreneur Sam Hogg sums up this view when he writes, “Startups require innovative entrepreneurs, and that typically isn’t in a job description for a large company.”īut in fact, large firms, on average, are more innovative than small firms. Large corporate giants are sluggish, risk-averse, copiers. Small firms are nimble, hungry, and innovative. Small businesses are innovative dynamos, aren’t they? And regarding “Chainsaw Al”: As of 2015, really big establishments-those with 5,000 or more employees-were 4 times less likely to lay off workers than those with fewer than 250 employees.Ģ. This is also why almost two-thirds of new jobs since 1990 have been in firms with 500 or more employees, even though those firms employed just 42 percent of workers. In contrast, firms with more than 500 employees were responsible for 26 percent of gross job gains but 38 percent of net job gains. ![]() ![]() This is why from 1993 to 2010, small firms with fewer than 20 employees were responsible for 29 percent of gross job creation but only 15 percent of net job gains. It is true that small firms create a lot of jobs, but they also destroy almost as many, because they are much more likely than big firms to go out of business or shrink. President Barack Obama’s 2013 budget summed up the view: “Small businesses are the engine of job growth in our economy.” At the same, time we are a fed a steady diet of stories about how large corporations, run by rapacious CEOs with nicknames like “Chainsaw Al” Dunlap and “Neutron Jack” Welch, ruthlessly slash jobs to pad their profits and bonuses. Ever since MIT researcher David Birch wrote in the late 1970s that small businesses create the lion’s share of new jobs in the economy, this assertion has taken on mythic proportions. Small businesses are the economy’s job engine, right? Here are five of the most egregious examples:ġ. Yet, much of what people assume to be true about big business is completely wrong. And pretty much everyone believes that small businesses are the real engines of job creation and innovation in America. ![]() Liberals decry big companies for allegedly exploiting their workers, ripping off consumers, and hurting hardworking small business owners. Conservatives criticize large corporations for enlisting “big government” in what they view as “crony capitalist” machinations. “Big business” has come under withering attack in recent years from across the political spectrum.
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