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THIS WEEK

Dave Terry: On the edge of control, A&E: Big Band Legends at Dunfield Theatre, Events, Rural, Health & Wellness, Spotlight on Business

Is small really beautiful

Several years ago a book entitled Small Is Beautiful written by E.F. Schumacher tried to make case against bigness. His arguments seem to fall flat in the business world.

A well known economist,  Joseph Schumpeter, wrote that small companies are more innovative, but he later changed his mind, subsequently, because the big firms have more reasons to invest in new products. He inferred that they can sell them more rapidly to more people and thus profit forthwith.

He came to believe that in a free market products are quickly copied, so a new product may have only a short life span; a small firm may lack the ability to bring an item to market promptly.

Michael Mandel of the Progressive Policy Institute asserted that economic growth is fostered by big businesses, inasmuch as they have the scale to provide technological leadership. They probably are bureaucratic, but they can take the time to ensure that a new product has long-term growth potential.

Mandel claimed that globalization requires companies with a bigger reach; the developing world will be fierce competitors, so only a larger organization has the wherewithal to meet such challenges. Nowadays, too, state-sponsored firms have become competitors in trying to market new items.

In addition in this complicated world, innovations will entail complex processes; health care, for instance. Only a large organization will have sufficient resources to handle something so difficult.

The trouble currently is that governments are fixated on helping small business as that has a wide voter appeal, despite the fact that it ignores other issues. Big companies can more easily recruit the most capable employees by offering unusual benefits. If a major company approached a think tank or university, it would command more attention than a less well known enterprise.

Of course many new companies start out small, such as Facebook or Google, but for every story with a favourable outcome, there are countless examples of ones that fail. The success ratio of a smaller organization is much lower than that of a major competitor trying to compete in this precarious economic climate.

New companies perhaps may be more innovative than larger ones, but the risks in backing the former far outweigh any possible gains.

In other words, small may be more beautiful in certain things, but as a generalization one must be wary. Big may just be better.

The Wellington Advertiser

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