Will Small Business Win in the End?

A few weeks ago Schumpeter, the nom de plume for each current author of the business op-ed column in The Economist, postulated the decline and fall of the Western Corporation. Could small business be the little furry mammals of the 21st century, triumphing over the seemingly invincible Tyrannosaurs of the business world?

At first, the signs aren’t obvious. Corporate profits are now 10% of world GDP, and at the highest level in proportion to the American economy since 1929 (gulp). The number of multinationals has doubled in the last 25 years. Some are sitting on piles of money sufficient to start a country (Apple’s $200 billion in cash, for example). This wealth and power is increasingly concentrated, as exchange-listed companies in the USA have declined by half since 1996.

T RexFacebook serves as many people every single month as populate China. Entrepreneurs last names, like Musk, Brin, Zuckerberg and Gates are now associated with space exploration,  third-world aid and medical research, usurping the former exclusive province of governments.

Does all this add up to a Rollerball planet, where corporations replace elected officials in deciding what the world will do? (Assuming, of course, that you don’t believe that has happened already.)

Schumpeter says not. The rise of emerging market businesses and the speed with which a new technology can place its owners among the big boys are two ameliorating factors. Privately held tech companies and family conglomerates are breaking the chains of Wall Street’s quarterly expectations to follow a longer term vision.

Populism on both the left and right in Europe and America is casting a bright light (and one that is none too flattering) on many formerly opaque corporate practices. The 99% (anyone making less than $350,000 a year) increasingly demand that their votes be repaid, if not with handouts, at least with the opportunity to make a decent wage and advance economically through an individual career.

Increasingly, elected officials win votes by mandating higher wages and benefits. They bolster their budgets when (as under the specific direction of Attorney General Eric Holder) they file charges against big companies with the express intent of forcing large financial settlements.

I can’t quite wrap my brain around a world without big corporations. There are changes I’d like to see, like a reining in of executives who award themselves multigenerational wealth while providing a lousy return to shareholders. I think Schumpeter has a point, however. The world of big business has only been around for about 100 years, and has been dramatically taken to the woodshed multiple times in the past. It may be happening again.

I don’t think small companies are likely to inherit the business earth, but some leveling of the playing field would certainly be nice. We’ll see if that can happen without just making the life of every employer, both large and small, miserable.

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4 Responses to Will Small Business Win in the End?

  1. There is innovation which comes from smaller sized organizations. Then they get absorbed by ← larger fish in the food chain. Economic set backs create the groundwork for entrepreneurial growth – starting a business in lieu of not getting a job with bigcorp or the government. it is a cycle. the proven successful small businesses get acquired by larger companies with capital and no innovation. mom and pop video stores were acquired to make Blockbuster but even these have a life cycle and big does not always mean an enconomy of scale. red box in your grocery store lobby seems to be doing just fine as a vending machine operation.
    none of us lead active business lives in the historic perspective of 100’s of years. We have to make payroll or the rent this week, satisfy the customer with good qualty at a market price which is not increasing and do all of the other things required of us by the community we operate in. Small business people are heroes but because we do such a poor job of economic education in our schools their success is viewed as a lucky lottery instead of hard work.
    we will be in trouble when they start saying why bother?!

  2. Hi John,

    I see small businesses growing and playing a bigger part in the US, and heck, around the world, in supporting economies. As more entrepreneurs get the gist that they are making a difference and with the ease of buying a domain and hosting more folks are growing prospering small businesses. Side note; I’m awake and it’s almost 2 😉

    Ryan

  3. Luis says:

    The longer insterest rates remaiin at zero or below zero levels, the more difficult things will be for SMBs and middle classes. Because real zero rates are just for Big corps, banks, etc. in most of the Western world. This means they can almost print money.
    On the other hand, all the rest of us are deeply indepted with them (either through credits or public bonds), and we have no other resources but our working hours to pay them, competing on a global basis to sell them.
    Inequality is absolutely inevitable, and it will get much much worse beacuse politicans and central banks are into this strategy of ‘asymmetrical capitalism’.

  4. Mike Wright says:

    Last night I heard on the presidential debate that they were going to do something for small business in new tax codes. They also said they were going to do something for the middle class and those at of near the poverty level. All of the money of the wealthiest people cant come close to covering the budget. Maybe the politicians have a plan to bleed the dinosaurs. But, in true financial wealth theory we need to grow companies capable of moving large sums of money into our economy. Curious! When might we start focusing on educating future voters on economics and understanding how capitalism works as a whole. Small furry mammals or cockroaches? We must remain nimble to stay out from underfoot of Big Business, Big Government and Big Labor.

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