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A snapshot of the summary - Enterprise and small business : Principles, practice and policy.
1 Defining and measuring the small business
Labour Force Surveys
- Used to estimate number of self employed individuals and uncorporated businesses.
- Data is coming from a survey.
'N shaped business ownership' puzzle of the US. Two explanations:
- Static explanation: there is an equilibrium rate between economic development and business ownership.
- Dynamic explanation: rate of entry & exit. The enterprise churn.
Explanations for changes in business ownership
- Cost disadvantages: BO went down. Because before 80s, era of mass production, this means the minimum efficient scale (ME) was important. This promoted concentration of ownership and drove SE away.
- Technological changes: in 80s more PC, so BO went up. Lead to less economies of scale, smaller MES, more flexibility and new industries.
- Innovation: SE have advantages, less bureaucratic and more flexible.
- LE fragmentation: LE transfers risk by franchising. Leads to rise of BO.
- Development of service sector: more tailor made goals, rise of BO.
- Changes in Labour Market: unemployment pushed to selfemployment. BO rises.
Bolton's Quantitative approach of SE
- There is no single measure (asset, turnover) likely to fully account for size of an enterprise.
- So there's a variety of measures.
Storey criticised Boltons qualitative approach- LE may run in highly personalized manner- Independent is relative concept (SE may be legally independent, but still rely on LE)- SE may perform in niche, and therefor have large market share
Problems with Bolton's quantitative definition
- Quantitative criteria are arbitrary and country/industry specific
- measures are eroded over time (inflation)
- no uniform definition
- How to measure informal/illegal/homeworking/network marketing?
Bolton's qualitative approach of smaller enterprise
- Independent (not part of LE)
- managed in a personalized matter
- relatively small share of market
- greater uncertainty
2 Government and Small Business
Implications for government action
- SE wants to maintain and develop product markets themselves.
- SE wants government to maintain strong economic environment.
- No demand for government to do things for specific firms.
Government action is good for 3 reasons
- Market failure: SE have lack of control and suffer specific barriers or unequal treatment, government should help this remove. (Training example)
- Create Jobs: SE can encourage economic growth.
- Develop a vision: strategic vision for the whole economy. Government should try to boost this.
LE dominance has long been encouraged by government
- Planning of supply during wars led to consolidations.
- Until 60s government encouraged price cartels.
- Growth of socialism led to nationalism & big subsiding.