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Author Topic:   Smalll Businesses
Jon
Inactive Member


Message 1 of 69 (723931)
04-10-2014 10:18 PM


We hear a lot of talk about the importance of investing in small businesses.
But are small businesses really a benefit?
If so, what benefit do they provide?
What are their drawbacks?
As far as I can tell, small businesses are inefficient. They also employ far fewer people. The only apparent benefit is their tendency to pay more. But this is not a result of them being a small business. A big business that pays its employees the same as a small business is much better than a number of small businesses that together equal the sales volume of the big business. This is because big businesses are more efficient and can justify more hiring than many small businesses.
Perhaps I'm wrong, but small businesses don't seem to be the way to go. A better approach to fixing economic problems would be to mandate better pay for those working at big businesses (their main drawback being their ability to use their influence to control wages). In fact, communally-owned big businesses would theoretically not suffer from any of these problems...
And now I don't know what I'm saying.
Pick it apart. I throw my thoughts to the lions!

Love your enemies!

Replies to this message:
 Message 2 by Coyote, posted 04-11-2014 12:21 AM Jon has not replied
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 Message 5 by ramoss, posted 04-11-2014 1:13 PM Jon has not replied
 Message 6 by Taq, posted 04-11-2014 1:30 PM Jon has replied
 Message 10 by Diomedes, posted 04-11-2014 3:54 PM Jon has not replied
 Message 14 by frako, posted 04-12-2014 7:06 AM Jon has replied

  
Coyote
Member (Idle past 2106 days)
Posts: 6117
Joined: 01-12-2008


Message 2 of 69 (723936)
04-11-2014 12:21 AM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


As a thought experiment, it might be helpful for you to research and provide us with a list of top-down managed/mandated economies which have been hugely successful.

This message is a reply to:
 Message 1 by Jon, posted 04-10-2014 10:18 PM Jon has not replied

  
AZPaul3
Member
Posts: 8513
From: Phoenix
Joined: 11-06-2006
Member Rating: 5.3


(1)
Message 3 of 69 (723938)
04-11-2014 12:39 AM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


They also employ far fewer people.
Oops.
quote:
Small firms accounted for 65 percent (or 9.8 million) of the 15 million net new jobs created between 1993 and 2009. Much of the job growth is from fast-growing high-impact firms, which represent about 5-6 percent of all firms and are on average 25 years old.
Also,
Small business (less than 500 employees) account for almost half of all private sector employment.
source

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ringo
Member (Idle past 412 days)
Posts: 20940
From: frozen wasteland
Joined: 03-23-2005


(1)
Message 4 of 69 (723969)
04-11-2014 12:16 PM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


Many years ago I read an article in a union publication that disputed the contribution of small businesses. About all I remember of it is that if you define "small business" by the number of employees, your local McDonalds franchise is a small business. But of course your local McDonalds reaps the benefits of (inter)national advertising, promotions, etc.
So you can say just about anything about "small business" and be both right and wrong.

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 Message 1 by Jon, posted 04-10-2014 10:18 PM Jon has not replied

  
ramoss
Member (Idle past 612 days)
Posts: 3228
Joined: 08-11-2004


Message 5 of 69 (723994)
04-11-2014 1:13 PM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


While a small business might employ fewer people , you need more small businesses for the same market, which employes more people. It also means that the concentration of wealth gets spread around, rather than congealing in just a few individuals.

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Taq
Member
Posts: 9973
Joined: 03-06-2009
Member Rating: 5.7


Message 6 of 69 (724005)
04-11-2014 1:30 PM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


As far as I can tell, small businesses are inefficient. They also employ far fewer people.
I was under the impression that small businesses were ineffecient because they employed too many people, as an aggregate.
For example, if we broke up a Best Buy shop into smaller shops that produced the same amount of aggregate sales, wouldn't we see more employees with the bunch of smaller shops instead of just one big Best Buy?
If we took Amazon's sales and put those into big box retail stores, we would see another big increase in the number of needed employees, from what I have been told.

This message is a reply to:
 Message 1 by Jon, posted 04-10-2014 10:18 PM Jon has replied

Replies to this message:
 Message 7 by Jon, posted 04-11-2014 2:10 PM Taq has replied

  
Jon
Inactive Member


Message 7 of 69 (724017)
04-11-2014 2:10 PM
Reply to: Message 6 by Taq
04-11-2014 1:30 PM


Suppose a volume of sales equal to 20 units (or its increase) is required to justify the hiring of each additional employee and a local economy has a demand of 200 units.
The maximum number of employees possible in this scenario is 10.
If we are to meet that demand through small businesses, there are only a couple efficient ways to meet that demand and maximize employment (=10). If we have 7 small businesses, each one will sell approximately 28 units. This allows these businesses to collectively employee 7 people: 3 below the maximum. If we have 6 small businesses, each one will sell about 33 units. This allows the employment 6 people: 4 below the maximum. In fact, with a small-business based system, there are only two models that allow for maximum employment: 10 businesses employing 1 person each or 5 businesses employing 2 people each.
In all other cases there is an extra amount of demand per business thatthough in aggregate would justify the employment of extra individualswhen spread amongst the several different firms obliterates that justification and the employment of those additional workers.
However, in a big-business model, there is never a scenario where 200 units can be sold without the justification for the maximum number of employees (=10) also existing.
Furthermore, even in a model for a small-business economy that achieves the maximum level of employment, as demand rises, the same inefficiencies in employment creep back into the model.
Suppose there are 5 firms selling 40 units each and employing 2 people (total 200 units and 10 people). Now suppose local demand rises to 220 (+20). No one firm will give up access to its share of the additional sales, and so the additional 20 are spread over the five firms to give each an extra 4 units of sale. No additional employment is created.
However, in a big-business model, the extra 20 units of sale will immediately trigger the justifications for an additional unit of employment. A small business model of 5 firms would require the additional demand of 100 more units to finally justify an increase of employment in the firms (1 extra employee each = 5). The big-business, of course, will also add 5 employees at the same time; the only difference being that it can add an additional employee anytime the demand increases by 20 units. The small business model requires an increase in demand of 100 units.
It's all or nothing with the small-business model, with everything in between being inefficient. A big business can remain efficient even in between.
When it comes to employment efficiency, the small-business model can only ever be as good as the big business model, and more often than not is drastically inferior to it. In terms of employment, in an economy of small businesses we cannot as easily reach a level of employment consistent with the total market demand for that employment.
The only other option in the small-business model is to move all additional 20 units of demand to a single firm; not only is this unlikely, but if it does occur it is a sign of domination by a single firm over the others (a move toward a big-business model).
In an economy of ever-increasing demand, the big-business model is the only one that works, mainly because the satisfaction of increased demand (caused by a number of factors) requires a level of efficiency that an economy of small businesses simply cannot provide. The efficiency of big business is an explanation for why big business is preferred in a dense economic scenario (such as we often have in the U.S.: lots of people living in a single area).
This is only one of the reasons for big businesses being more efficient. They also promote other efficiencies, e.g., in shipping of goods, packaging, selling (maybe we don't need 5 cash registers to sell 200 units, maybe we really only need 4), etc.
In fact, the only downfall I can see to a big-business model is that the power held by the big business allows it to manipulate things in its favor (for example, lowering wages). But these problems are easily fixed by enacting laws that limit a big-businesses power; creating a system where efficiency is maximized and abuse minimized.
But we cannot reasonably get to that level of maximum efficiency if we stick to the small-business model. We have to use a controlled big-business model or drown in our inefficiency.

Love your enemies!

This message is a reply to:
 Message 6 by Taq, posted 04-11-2014 1:30 PM Taq has replied

Replies to this message:
 Message 8 by NoNukes, posted 04-11-2014 2:35 PM Jon has not replied
 Message 9 by Taq, posted 04-11-2014 3:14 PM Jon has replied

  
NoNukes
Inactive Member


Message 8 of 69 (724020)
04-11-2014 2:35 PM
Reply to: Message 7 by Jon
04-11-2014 2:10 PM


Voodoo economics.
You cannot come up with even one inefficiency related to a large business?
Yes there are economies of scale, but not every business opportunity is large enough or slow enough to wait for a big business to ramp up. It seems to me more efficient to allow start ups to be small, and then allow some aggregation into larger business units or alternatively allow the small business to expand and take over larger share as their particular solution wins in the market place. And that sounds pretty much like what we already have.
Let me also suggest that the kind of 'efficiency' you are talking about is not always a great deal for workers. Because it invariably turns out that the assumption that one person is required to produce and sell 20 units is wrong and that we can get 30 or 40 units out of that one person via automation or other scale up efficiency.

Under a government which imprisons any unjustly, the true place for a just man is also in prison. Thoreau: Civil Disobedience (1846)
I have never met a man so ignorant that I couldn't learn something from him. Galileo Galilei
If there is no struggle, there is no progress. Those who profess to favor freedom, and deprecate agitation, are men who want crops without plowing up the ground, they want rain without thunder and lightning. Frederick Douglass

This message is a reply to:
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Taq
Member
Posts: 9973
Joined: 03-06-2009
Member Rating: 5.7


Message 9 of 69 (724028)
04-11-2014 3:14 PM
Reply to: Message 7 by Jon
04-11-2014 2:10 PM


Suppose a volume of sales equal to 20 units (or its increase) is required to justify the hiring of each additional employee and a local economy has a demand of 200 units.
Does this number scale depending on the number of employees?
Just as a comparison, as a high school/college student I worked at a big meat packing plant, and I was also close with the family who owned the local butcher shop. From my own limited exposure, the amount of meat processed per person was much, much higher at the meat packing plant than at the local butcher shop. Perhaps this is an isolated case that doesn't scale to the rest of the economy, but this is a view I thought was common amongst economists. I could be wrong though.

This message is a reply to:
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Replies to this message:
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Diomedes
Member
Posts: 995
From: Central Florida, USA
Joined: 09-13-2013


(1)
Message 10 of 69 (724032)
04-11-2014 3:54 PM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


As far as I can tell, small businesses are inefficient
As someone who has worked for both small and large tech companies, I would actually argue that the opposite is true.
Smaller companies are far more nimble and have faster turnaround time for product to market. Larger companies generally invoke large amounts of bureaucracy in their day to day activities. Additionally, people have more specialized roles in larger companies while smaller ones can distribute the workload to people who are more the 'jack of all trades' type individuals.
I guess one can argue that duplication of efforts in several smaller business can appear as though their is 'inefficiency'. If two companies merge for example, there is usually attrition in the HR orgs for example as some workers jobs become redundant. Although I would state that isn't really an example of inefficiency; it is more one of cost consolidation.

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Replies to this message:
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 Message 12 by New Cat's Eye, posted 04-11-2014 4:07 PM Diomedes has replied

  
xongsmith
Member
Posts: 2578
From: massachusetts US
Joined: 01-01-2009
Member Rating: 6.8


(2)
Message 11 of 69 (724033)
04-11-2014 4:00 PM
Reply to: Message 10 by Diomedes
04-11-2014 3:54 PM


I estimate that nearly ALL of the significant innovation occurs in small businesses - way before they became big. The only exception I have at my fingertips now is the transistor, built in Bell Labs, which probably cannot qualify as small business by normal standards today.
In a certain way, it is a tragedy to intelligent civilization that there is such a thing as "economy of scale".
- nate

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New Cat's Eye
Inactive Member


(1)
Message 12 of 69 (724034)
04-11-2014 4:07 PM
Reply to: Message 10 by Diomedes
04-11-2014 3:54 PM


Larger companies generally invoke large amounts of bureaucracy in their day to day activities.
"Please fill out this form to vote on when we'll have our round-table to figure out when the conference call will be held to discuss the timing of our meeting to determine when the webinar will be presented."
"Wait, is that form an official document? You going to have to get a form approval form filled out before you can distribute it. Call me later to schedule a meeting to determine who will complete the form approval form."
Edited by Catholic Scientist, : No reason given.

This message is a reply to:
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Jon
Inactive Member


Message 13 of 69 (724063)
04-11-2014 10:58 PM
Reply to: Message 9 by Taq
04-11-2014 3:14 PM


What you and NoNukes are both talking about relates to increased efficiency that results in fewer employees being required per unit of output.
Typically this is a bad thing for the people doing the work, since they become unemployed. But in a properly managed system, this is not necessary, because one of the two following things can happen:
  1. The 'extra' labor can be put to use producing some other essential or demanded product, or
  2. In the case that there are no more essential or demanded products, the overall labor input can simply be reduced and the gains from increasing efficiency be distributed.

Love your enemies!

This message is a reply to:
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Replies to this message:
 Message 17 by NoNukes, posted 04-12-2014 2:46 PM Jon has replied

  
frako
Member (Idle past 306 days)
Posts: 2932
From: slovenija
Joined: 09-04-2010


Message 14 of 69 (724068)
04-12-2014 7:06 AM
Reply to: Message 1 by Jon
04-10-2014 10:18 PM


In fact, communally-owned big businesses would theoretically not suffer from any of these problems...
Well id did work for a time in Yugoslavia, we had no homeless, the best healthcare, everybody had a job, any one could own a house ..... It was fun for as long as it lasted. sure we had a few problems like freedom of speech was limited you couldn't say anything against the country or the dictator. The policy for imprisoning was if a few innocents get locked up its a fair price to get the bad people locked up and stuff like that.
there where a few problems in the system that basically killed it, profit wasn't liked and if a company made profit it was divided among the workers severely decreasing the possibilities of growing companies. Then there was human nature in one of the big companies not fare from me workers would use Co2 to cool their finger then whack it with a hammer braking it without any pain but a lot of paid leave so they could other work at home. but the biggest problem was the country was made up of 6 ethnicities that dint like each other, and at least 3 religions that dint like each other, so when Tito died no enigmatic figure was left to hold it all together.
Now there are some things people don't expect but are really logical if you think about it in a system like that. with money not being such a factor in what you could buy there where shortages of stuff sometimes, like coffee or chocolate the simple reason being people bought them all up cause they could. In a capitalistic system the prices would just go up so the poor could not afford them.
But talk about downsizing Gra a big sawmill company back in Yugoslavia it employed over 1000 people, when it became a private company when Slovenia seceded it cut down to 150, it dint have much trouble paying a solid wage for a 1000 back then now most are on minimum wage, well except for the 3 bosses they dont know what to do with their money one of them has a stream ruining under a glass flore in his living room cause he liked it.
but my belief is that in its essence it was a better system the people where just not ready for it.

Christianity, One woman's lie about an affair that got seriously out of hand
What are the Christians gonna do to me ..... Forgive me, good luck with that.

This message is a reply to:
 Message 1 by Jon, posted 04-10-2014 10:18 PM Jon has replied

Replies to this message:
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Diomedes
Member
Posts: 995
From: Central Florida, USA
Joined: 09-13-2013


Message 15 of 69 (724074)
04-12-2014 11:02 AM
Reply to: Message 12 by New Cat's Eye
04-11-2014 4:07 PM


"Please fill out this form to vote on when we'll have our round-table to figure out when the conference call will be held to discuss the timing of our meeting to determine when the webinar will be presented."
"Wait, is that form an official document? You going to have to get a form approval form filled out before you can distribute it. Call me later to schedule a meeting to determine who will complete the form approval form."
Kind of reminds me of the Vogons from Hitchhikers Guide to the Galaxy fame.
Incidentally, I was at a company once where, I kid you not, they held a large meeting with senior leaders to discuss why there were so many meetings going on. Now THAT'S inflation!

This message is a reply to:
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