‘Big Is Beautiful’ Questions the Virtues of Small Business

Posted April 30, 2018 4:42 p.m. EDT

One of the few remaining topics about which America’s increasingly polarized populace can seem to agree is the relative virtue of small business. Whether you are a Midwestern populist bemoaning the decline of the family farm, an East Coast realist focused on the role of small firms in driving job creation, a Silicon Valley entrepreneur dreaming of disrupting the status quo or just bitter that your favorite local restaurant was replaced by an Olive Garden, everyone, it seems, has reason to embrace small businesses. In the view of Robert D. Atkinson and Michael Lind, the authors of “Big Is Beautiful: Debunking the Myth of Small Business,” America’s predisposition since the 1970s for favoring the little guy is not just misguided but has had a profoundly pernicious effect on our economy and society.

The empirical evidence amassed by Atkinson and Lind in opposition to the “cult of small business in America” is impressive. The authors conclude that “on virtually every meaningful indicator, including wages, productivity, environmental protection, exporting, innovation, employment diversity and tax compliance, large firms as a group significantly outperform small firms.”

Even the conventional wisdom that “small businesses are the engine of job growth in our economy” comes under attack. “Big Is Beautiful” points to flawed research based on “gross” rather than “net” job creation as the “origin of the small business job creation myth.” Because the vast majority of small businesses fail, taking into account the resulting job losses reveals a modest contribution to overall job creation. One particularly striking research article cited notes that “it takes 43 startups to end up with just one company that employs anyone other than the founder after 10 years.” The average number employed by that surviving startup: just nine.

This skeptical attitude toward the inherent superiority of small firms to large is supported by the fact that their share of overall employment tends to go up only when the economy is weak rather than strong. This suggests not that small firms are the engine of job growth, but that job seekers are willing to accept their systematically lower wages, benefits and diversity only when forced to in times of high unemployment.

The national consensus in favor of all things small is reflected in a dizzying array of local and national laws that provide either affirmative benefits or valuable exemptions. Both authors are inveterate policy wonks, having spent much of their careers at a succession of public and private think tanks, and devote half the book to discussing the history of these rules and justifying alternatives to our current regulatory approach to antitrust, tax and dozens of other topics.

Possibly inspired by the wide popularity of “net neutrality,” “Big Is Beautiful” defends many of its often radical policy proposals under the benign-sounding principle of “size neutrality.” Although these arguments are often interesting, they are weakened by caricaturing the positions of those who take a different view and the overuse of policy jargon. For instance, they name their own philosophy “national developmentalism” and describe opponents of their approach to antitrust enforcement as “neo-Brandeisians” who, if they “get their way,” will “break up most large companies into medium-sized ones.”

Regardless of the validity of their specific policy prescriptions, the data synthesized by Atkinson and Lind does call into question the wisdom of prevailing attitudes toward small business relative to large not just in law but in society. A look at recent trends in where graduates of top MBA programs go to work reflects this increasing antipathy toward large firms.

Until recently, upward of 60 percent of graduates from top MBA programs headed to investment banking or management consulting jobs. Nowhere has the decline in the attractiveness of these industries to MBAs been starker than my alma mater, Stanford Business School, where only 1 percent of the most recent graduating class went into investment banking.

Given that Stanford is in the heart of Silicon Valley, it should be neither surprising nor worrisome that today almost as many graduates decide to start their own company as those who go into consulting (20 percent).

But the preference for small business extends well beyond Stanford. At a recent symposium of leading business schools held at Columbia Business School, the dean of Harvard’s Business School revealed that 60 percent of its graduates now elect to work for companies with no more than a few hundred employees. This shift toward smaller companies as employers of preference seems to be encouraged by the business schools themselves. At the same conference, Wharton’s dean suggested a form of “affirmative action” to assist small-company recruitment efforts.

If Atkinson and Lind are correct that big businesses are the prime driver of productivity while also maintaining a better record on social issues, it is at a minimum worth pausing before rejoicing over the rejection of large corporations by the most promising MBAs. Large corporations themselves, as the recent Facebook scandals attest, bear much of the blame for the increasing disfavor in which they are held. But even if some of the contempt has been earned, “Big Is Beautiful” succeeds in highlighting why it is in our collective interest to find ways to help the biggest corporations earn back our trust and attract more of our best graduates.