Yves here. This Richard Murphy post makes an important and often overlooked point: the roles that small and large enterprises play are fundamentally different, and that has policy implications. But I have a quibble about a passing comment about small businesses, that they were established because the founder wanted to make more money.
Even in my limited circle, mercenary motives were often not the driver for starting a new venture. Many mid-career managers and professionals wind up finding themselves in an untenable position, such as having their employer acquired (they soon or will eventually be turfed out; the target’s workers are presumed to be no good), having a new boss set priorities that the employee regards as misguided or unethical; or having to move in order to keep the job. Mid-career workers often have limited employment opportunities elsewhere in the industry (there just aren’t that many comparable slots and there are often none at acceptable employers when a employee wants to make a jump). So if they have already noticed not-well-served needs in their industry, that could serve as a basis for starting a niche enterprise (in fact, research on entrepreneurship has found that this sort of venture has high odds of succeeding).
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future
To pretend that there is almost any similarity between small and big businesses is absurd. Small businesses have to serve us, or they fail. Big business tries to entrap us in debt to ensure that they keep growing ever bigger. We need to rethink what we think about the private sector – and what parts of it we want to promote.
This is the audio version of this video:
And this is the transcript:
Big businesses and small businesses are nothing like each other. They might as well be like chalk and cheese for all the similarities they’ve got. It seems that most people don’t understand that. Most especially, most politicians don’t understand that, and neither do a lot of journalists. But it’s really important that this distinction be understood because as long as this confusion, which presumes that big business is just a small business that’s got a bit bigger, exists, we’re in deep trouble when it comes to economic policy.
Small businesses have characteristics which are utterly unlike those of most big businesses who are household brand names.
Small businesses do something useful for a start. They can only survive because they supply a product or service that somebody definitely wants to buy. And I do rather stress that point.
By and large, they don’t generate a market for a product. They do instead meet a need. So, vast numbers of small businesses are in the service sector doing things that people genuinely want. They’re plumbers, they’re builders, they’re electricians, they’re decorators, they’re people who supply personal services of various sorts, from chiropodists to home tutors to all sorts of things like that.
Those businesses are run by craftspeople, artisans, specialists in their area, who know how to do something better than the person who buys their services can ever hope to achieve. That’s their raison d’etre – their reason for being – their niche, which provides them with the opportunity to earn more than they otherwise could. Which is why people take the risk of going into self-employment in the first place by and large, because, don’t get me wrong here, it’s a hassle to be self-employed, and it involves more risk than employment does.
So those businesses are really important.
Some of them also grow. They tend to accumulate others who want to work for them, but they still meet the same broad criteria of actually supplying a service that somebody wants and knows they want without having to be induced to feel the need to buy.
The advertising that is undertaken by these businesses shows that. They’re not out there saying, we have this new product, whatever it might be – the ultimate new dog whistle or whatever it is that they have invented. No, what they’re doing is actually supplying something that already exists in reality and all they’re doing when they advertise is to make people aware of their availability to undertake whatever it is that they specialise in.
Let’s compare that with most big businesses. Big businesses are utterly different in type from small businesses because basically, unlike a small business, which is a bit-part player in the market of which they are a component, a big business seeks to control, manipulate, and even manufacture its own market.
The ultimate example is Apple. Apple sought to, from the very beginning of its existence, create a market for a type of PC that had never existed before, and then it expanded into iPods and then into iPhones and into Apple Music and all sorts of things, but it created a market for something that never existed beforehand.
There were similar companies in earlier generations. Hoover was an example. So commonplace was the idea that the Hoover was something new and generic that everybody wanted that we can all identify what a hoover is even though it might not be made by the Hoover company.
And that is what a large company does. It tries to create a niche that did not exist before and by protecting what it does through the use of intellectual property law for copyrights and patents and so on It makes a niche for itself where it can make what is called a super-normal profit.
A super normal profit simply means it is a rate of profit over and above that which would be made in an ordinary company which was participating in the market rather than creating the market.
Now, these large companies, because they can manipulate markets, create markets, and exploit markets, tend to earn excessive profits. And as a consequence, they do something which is quite different from small businesses. They grow very rapidly.
Small businesses tend to reach a plateau and stop. And there are good reasons for that. Normally, they only have a defined geographic area in which they can work. Or, they’re run by one, two, or three people or so. And they reach the limit of their capacity to manage, and they don’t want to expand as a result. They’re happy. Small businesses satisfy.
Large businesses are never satisfied. Large businesses always want more. Most of the world’s problems are down to large businesses wanting more.
The exploitation of the planet is very largely down to that one single goal of large business.
The exploitation of people was also, over time, for very much the same reason. Big business wanted more profit, and it got it by suppressing the terms and conditions, the wages, the rights to employment, the rights to holiday pay, the rights to pensions, the right to sick pay, and everything else that they could.
And that still goes on. You can even see it now. Labour is proposing some new employment laws, which I welcome. One of the few things it’s doing which are good. And those employment laws are being challenged by big businesses as being a fundamental threat to their right to operate as they wish. Their right, in other words, to make maximum profits at cost to the people they employ.
Now, you can identify these companies. I’ve already mentioned one. But there are also supermarket brands, and there are also sports brands.
So, for example, once upon a time, everybody took part in the football league, and they were comparable entities. I’m old enough to remember when Ipswich Town won what is now the Premiership. It wasn’t called that then. But they weren’t a super normal company seeking to exploit their situation to maximise their profits. They were just the local club.
Now we have super brands. Chelsea, Manchester City, Manchester United – even though they’re abysmal on the field – and others Liverpool, for example, and of course, their equivalents throughout Europe and beyond – are exploiting their brand to make supernormal profits through the sale of merchandise and everything under the sun, creating markets for things that we never knew we needed. Shirts with numbers and names on the back, for example. This is what big business does. The cost to us all has been enormous.
Because let’s also be clear what big business does. Small business borrows from finance. And frankly, most small business people hate their bankers. I don’t want to exaggerate, but I’ve never met one who had a good relationship with their bank. They all tend to hate them for their service, for their costs, for their refusal to loan, and everything else.
Big business, instead, works in cahoots with finance to keep us in debt. Small business doesn’t do that; it doesn’t normally offer finance to go with what it’s doing. But big business does. And the reason why, is they want us to keep coming back for more whether we can afford it or not and therefore they offer us credit. And the credit that they supply means that they work in partnership with finance to keep us in place as debtors.
And as debtors, we are beholden to the system. We can’t risk losing our jobs because we won’t be able to pay what we owe. We can’t, therefore, argue with our employers. And we are required to keep on servicing their system. Their system, which does, of course, keep on growing as a result, apparently exponentially, even though we know that the world cannot support that growth in the long term.
So big business and finance, which is a specialist subgroup of big business, which sets out quite deliberately to exploit us by offering loans which many people can’t afford – as we know only too well from what happened during the recent cost of living crisis – those in combination are so utterly different from small business that it’s ridiculous to say that they even are part of the same private sector economy into which they are all lumped together.
The three components I’ve identified now – small business, big business and finance – are utterly different. But if you’re going to group any of them together, it’s big business and finance.
They operate to exploit, to create new markets, and ultimately to destroy our planet in the process. While small business is entrepreneurial, takes risk, involves capital which could be lost, and which meets needs.
One of those sectors, and only one of them, is really of tremendous use to our society. Big business is not.
When it comes down to it, most of the things that big business can do could be done by small business and quite possibly better. We don’t really need to innovate to destroy the planet anymore.
We don’t need to be in debt to the level that we are. We could have lower house prices, for example. And we could have smaller cars, and we’d still get from A to B just as well. We could, therefore, have smaller car debts.
We could not consume as much of the planet and be better off.
We could cut our energy consumption, except that would offend those large companies who are in that big business sector who want us to consume more, not less.
We could take the steps to change.
Small business is a part of that future that is sustainable.
I seriously question whether large business is. Because large business does not work in our best interests, and by and large, small business does.
And by and large, small business could do most of the things that large business does just as well, or if not better, because it tends to be much more innovative than large companies actually are because the one thing that large companies do not want is innovation because that threatens their power to control markets, which is precisely why they buy so many of their small competitors just to kill their products.
It’s time for us to rethink what the private sector is. There’s a private sector that we want and should keep and should nourish. It’s not the one that Keir Starmer is trying to encourage in the UK. It’s not the City of London focused market. It’s that which is down on your High Street or out on your local industrial estate. That’s what he should be encouraging. And he’s not doing that. And the cost to us all might be considerable as a consequence.
