Should small businesses be favored over large ones?

[vern_humphrey]

Belloc did consider the problem of industries that require large organizations, such as the auto industry. In his day the prime example was the railroad industry. “Cottage industry,” of course, could not produce a locomotive. Some businesses must be large; I do not dispute that, and neither did Belloc, although would object to exactly how large some auto companies have become, what with mergers, buyouts, and soforth.

One solution is to encourage the growth of companies who are “big enough.” For instance, I don’t know if many people could build a computer chip in a garage, but would imagine that fifty or a hundred could do so very well in a medium-sized lab/factory. If they happen to own the company (as in "employee owned and operated), so much the better!

Local stores are not “merely” outlets for manufacturers! They provide a needed service and generally provide well for their employees. And I think you would agree that an employer who knows his employees personally looks out for their interests better than one who has never heard their names. It also benefits a community to have a local business and to have the profit of that business be spent locally, as opposed to the major financial centers of the world. I’m much more comfortable knowing that the profit goes to pay for my bosses’ house–you know, to benefit the small entrepreneur–than if it went to pay for a multi-million dollar CEO bonus.

Sure, it would be better if products weren’t manufactured by multi-national mega-corps, but I’d rather have the small entrepreneur benefit from the sale than a faceless corp. entity.

Belloc makes the observation that distributism differs from Capitalism in a primary assumption. Capitalism assumes that the primary role of the economic policy is to cheapen prices and make the economy grow. The primary assumption of distributists is that the primary role of the economy is to encourage and protect a large class of property-holders, whether that property be businesses or small farms. Right now economic policy encourages and protects a very small number of property holders. Even most of those of us who own houses do not really own them; and Belloc contends that those who own real property are always more free and protected than those who don’t.

A biased theory – after all, capitalism does assume people will try to maximize their profits. It is the competition to maximize profits that produces the competition that holds down prices and assures quality.

By looking at this through warped lenses, one can arrive at the “distributionist” theory – but not fairly.

This is an example of what I call “admiting someone you don’t like does the right thing – but accusing him of doing if for the wrong reasons.”

 

[rlg94086]

Belloc did consider the problem of industries that require large organizations, such as the auto industry. In his day the prime example was the railroad industry. “Cottage industry,” of course, could not produce a locomotive. Some businesses must be large; I do not dispute that, and neither did Belloc, although would object to exactly how large some auto companies have become, what with mergers, buyouts, and soforth.

One solution is to encourage the growth of companies who are “big enough.” For instance, I don’t know if many people could build a computer chip in a garage, but would imagine that fifty or a hundred could do so very well in a medium-sized lab/factory. If they happen to own the company (as in "employee owned and operated), so much the better!

Hey, that is the very business I am in. I sell manufacturing equipment and materials to “chip” makers. Just to let you know, there are plenty of 50-100 person companies and many (almost all) of the large semiconductor companies started out that size. Are you recommending that their growth be restricted? If so, how?

The smaller companies I sell to are usually making specialized chips for the military, aerospace or medical markets. If they make a chip for a PC (or cell phone, or mp3 device, etc.) and it is highly successful, then their patent will probably be bought by one of the big guys and the owners of the company will be paid handsomely. As someone else mentioned, it is an economies of scale issue.

On the subcontractor side, it’s equally interesting. There are some very large subcontractors who help make semiconductors for the big guys. When a little guy comes to them with a project, they typically get turned away because the project is too small. Ah…failure right? Wrong! When small subcontractors become big subcontractors and turn away business, new small subcontractors pop up to take their place.

The wonderful world of free enterprise.

Local stores are not “merely” outlets for manufacturers! They provide a needed service and generally provide well for their employees. And I think you would agree that an employer who knows his employees personally looks out for their interests better than one who has never heard their names. It also benefits a community to have a local business and to have the profit of that business be spent locally, as opposed to the major financial centers of the world. I’m much more comfortable knowing that the profit goes to pay for my bosses’ house–you know, to benefit the small entrepreneur–than if it went to pay for a multi-million dollar CEO bonus.

Sure, it would be better if products weren’t manufactured by multi-national mega-corps, but I’d rather have the small entrepreneur benefit from the sale than a faceless corp. entity.

Belloc makes the observation that distributism differs from Capitalism in a primary assumption. Capitalism assumes that the primary role of the economic policy is to cheapen prices and make the economy grow. The primary assumption of distributists is that the primary role of the economy is to encourage and protect a large class of property-holders, whether that property be businesses or small farms. Right now economic policy encourages and protects a very small number of property holders. Even most of those of us who own houses do not really own them; and Belloc contends that those who own real property are always more free and protected than those who don’t.

The market generally takes care of such issues. There are plenty of medium-sized companies that do quite well competing against the mega-corporations. They do it by producing a better product, providing better service, and/or servicing a market niche the big guys won’t “waste their time on.” I only know distributism from posts on CAF - I haven’t read the original works. But, from what I have read, I think they are interesting theories that would unfortunately fall as flat as the communist experiments have.

 

[consumedconvert]

Hey, that is the very business I am in. I sell manufacturing equipment and materials to “chip” makers. Just to let you know, there are plenty of 50-100 person companies and many (almost all) of the large semiconductor companies started out that size. Are you recommending that their growth be restricted? If so, how?

By tax policies that tax the smaller companies at a lower rate than the mega companies.

The smaller companies I sell to are usually making specialized chips for the military, aerospace or medical markets. If they make a chip for a PC (or cell phone, or mp3 device, etc.) and it is highly successful, then their patent will probably be bought by one of the big guys and the owners of the company will be paid handsomely. As someone else mentioned, it is an economies of scale issue.

I refer you to the underlying Distributist philosophy that lower prices ought not be the primary goal of economic policy.

On the subcontractor side, it’s equally interesting. There are some very large subcontractors who help make semiconductors for the big guys. When a little guy comes to them with a project, they typically get turned away because the project is too small. Ah…failure right? Wrong! When small subcontractors become big subcontractors and turn away business, new small subcontractors pop up to take their place.

Belloc contends that when bigger eats up smaller, more and more men end up working for people who do not have their interest at heart and are therefore have less control over their lives and are consequently less free.

The wonderful world of free enterprise.

Free enterprise is a positive, certainly, but not intrinsic to capitalism. Free enterprise is made freer by distributist policy, less free by capitalism. One argument against socialism (and a good one) is that it is essentially wrong and inefficient for a government to own most or all of the productive property (capital) of a nation. Distributists go further and say that it is wrong and ineffiecient for a relative handful of companies to own most or all of the capital of a nation. We are surely headed that direction, if not practically there.

I only know distributism from posts on CAF - I haven’t read the original works. But, from what I have read, I think they are interesting theories that would unfortunately fall as flat as the communist experiments have.

I would heartily recommend “The Restoration of Property” by Hillaire Belloc (available from. ihspress.com). It would be very interesting reading, even if you don’t agree; and I’d wager that you would, in fact, agree with some of his suggestions, though probably not all. If you’d like a basic rundown, try distributist.blogspot.com (not my site, btw).

 

[vern_humphrey]

By tax policies that tax the smaller companies at a lower rate than the mega companies.

And we should tax short people at a lower rate than tall people, too.

Here’s a novel idea – tax the owners of businesses on their profit without regard to the size of the business. The little guy who owns $1,000 worth of stock would be taxed only on his dividends (no corporate tax on top of it) and the mom-and-pop entrepreneurs would be taxed only on their profit (no corporate tax on top of it).

What could be more fair than that?

 

[Ridgerunner]

Isn’t it funny how people who won’t get off their duffs and start their own businesses are so willing to tell **other people **what they can and cannot do in their businesses? Regarding purchasing power of small vs large businesses. **I do have my own small business, Vern. Actually, since I have a sub business within my business, I guess you could say I have two. They’re service businesses, so I don’t compete with Walmart, but I have seen lots of small businesses, well-established ones, go under because they don’t have the bargaining power of a Lowe’s or a Walmart. I have talked to small manufacturers who get “upstreamed” to death or nearly so, by the giants. It is not a level playing field by any stretch of the imagination.
**

Can you prove that assertion? **That the “well worker effect” gives an advantage to large business? The assertion concerning the “well worker” effect is well known. I have personally contracted medical group services for a large corporation, and I know what I’m talking about. I never made a deal for less than a 10% discount to Medicare rate, which, itself, is supposedly 60% of “reasonable and necessary” charges. It’s no secret that the medical groups and large businesses know about the “well worker effect”, and how it results in lower costs for insurance companies and large self-insureds. I have been present when it was discussed openly in meetings between medical groups and insurers. I have worked with large employers who factor it in as part of the “cost of doing business” upon termination. It’s not a myth. But it’s a bit like the ponzi scheme that is social security. You’re not going to find business commissioning studies on it, and you’re not going to find politicians willing to even admit its existence, due to the powerful lobbies the powerful have. **

The real reason is there is a law forbidding unaffiliated small businesses to band together and bargain for insurance for their employees from a position of strength. It’s ONE of the reasons.

Another example of people deciding they need to make other people follow their ideas.

This happens all the time. Next time you pay your taxes, you will be a participant in a whole range of the ideas of others. I am not a socialist Vern. Far from it. But there are some inequities small business face, and I’m one who favors businesses both small and large. Some of the inequities are the result of governmental partiality in favor of big business over small, and I think that’s wrong.

 

[Ridgerunner]

And we should tax short people at a lower rate than tall people, too. To be fair, it would actually be the other way around. Short people eat less and are less subject to some of the maladies that afflict larger people. I have an orthopaedic surgeon acquaintence who did a (anecdotal, involving his patients only) study, and found that when it comes to lumbar disc herniations, for instance, taller people have a substantial greater incidence than shorter people, for the simple reasons that both sets of discs are of the same strength and the taller person puts more leverage on his lumbar spine.

Here’s a novel idea – tax the owners of businesses on their profit without regard to the size of the business. The little guy who owns $1,000 worth of stock would be taxed only on his dividends (no corporate tax on top of it) and the mom-and-pop entrepreneurs would be taxed only on their profit (no corporate tax on top of it). **Nice try, but no cigar. Since the “mom and pop” businesses personally consume a greater portion of their gross income than do large businesses (that can also chisel on dividends and also deduct executive salaries and perks) it isn’t fair at all. If it were up to me, however, corporate taxes would be a good deal lower than they are, and the “lifetime exemption” (gift and estate tax exemption) would be a great deal higher than it is. **

What could be more fair than that?

Almost any of my suggestions

 

[Ridgerunner]

And I’m a short guy. I’m ten years older than my orthopod friend and I have no lumbar problems at all. He’s 6’4" and had his discectomy about five years ago. So, in truth, odds are that in some respects, he’ll cost the government or the insurance company more in the future than I will, all other things being equal.

 

[rlg94086]

By tax policies that tax the smaller companies at a lower rate than the mega companies.

I agree with Vern on this one. Why tax companies at all? In a way, it is double taxation. They could pay their employees more, if taxes weren’t taking away from their profitability.

I refer you to the underlying Distributist philosophy that lower prices ought not be the primary goal of economic policy.

Lower prices is not the primary goal of capitalism. It is a result of capitalism. Price control rarely works…in fact, it usually upsets the balance of supply and demand.

Belloc contends that when bigger eats up smaller, more and more men end up working for people who do not have their interest at heart and are therefore have less control over their lives and are consequently less free.

It’s an interesting contention. I don’t know that it is correct. An employee is free to leave the big corporation and start a small company or work for a different corporation that treats them better.

Free enterprise is a positive, certainly, but not intrinsic to capitalism. Free enterprise is made freer by distributist policy, less free by capitalism. One argument against socialism (and a good one) is that it is essentially wrong and inefficient for a government to own most or all of the productive property (capital) of a nation. Distributists go further and say that it is wrong and ineffiecient for a relative handful of companies to own most or all of the capital of a nation. We are surely headed that direction, if not practically there.

This I find absolutely hilarious. “Free enterprise is made freer” by instituting restrictions? Aren’t freedom and restriction basically opposites?

I would heartily recommend “The Restoration of Property” by Hillaire Belloc (available from. ihspress.com). It would be very interesting reading, even if you don’t agree; and I’d wager that you would, in fact, agree with some of his suggestions, though probably not all. If you’d like a basic rundown, try distributist.blogspot.com (not my site, btw).

Thanks. I will check it out.

 

[Bobby_Jim]

A lot of what are currently big businesses started out as small ones.

If someone has a good business plan, and the talent to succeed and make his business grow, who am I to say he can’t expand it, if it’s providing something of value that people want.

Good businesspeople generally will do the best job they possibly can. Sometimes this means squashing the local competition and expanding nationwide. The moment you take it easy and let up, someone else comes in and squashes you.

 

[manualman]

The thing to remember on these threads is that nobody who is tossing out ideas claims to have the details are meshed out. The defenders of capitalism’s status quo always jump in and attempt to poke holes, but this gives the impression that they believe we have the best of all systems right now. Is that correct? Vern and all, do you essentially believe that greed is good and that if government simply got out of everything except criminal law enforcement and border protection we’d be better off?

I don’t. I believe that humans are good, but fallen and that falleness places a great temptation in front of those who already have wealth and power. I don’t claim to have all the answers as to how we can implement systemic protections to guard against exploitation of the weak by the strong, but to deny that such things exist is tantamount to denial of the existence of Original Sin. (Ironically, the “greed is good” capitalists make the same mistake as the Liberation Theologians: they forget Original Sin. LT forgets that poor people sin too and think that if the rich are stripped of their wealth and power, we can make Utopia on earth. It’s just as bad to forget that rich people sin too and have more power to do it with!)

I DO notice something interesting in history. From the colonial days to the mid 1800’s, this country was markedly different from Europe in its economic makeup. Europe looked much like Vern’s dream: a few wealthy folks controlled most of the assets and the government was uninterested in interfering with this lopsided distribution of wealth (complicit in it even). Early America, on the other hand, looked more like Belloc’s dream: you came, you claimed your own land or opened your own shop and took initiative for yourself and reaped the benefits of success yourself. What happened? In a couple hundred years, America went from a prosperous, but minor colony to near parity with the centuries older European nations.

Vern and friends will likely argue that it was the resources, railroads and industrialists that made it happen. I don’t think so. They had those in Europe too. I think what did it was the American spirit that inherently revolved around the small business ownership and the associated motivation that this experience entails.

As discussed in another thread, corporations do not behave like private companies. Wall Street will not tolerate an operation that plans for generations to come and sacrifices some level of profit to create a more pleasant living environment. If you want an example, go visit some of the Wisconsin towns where the family owned dairy farm still exists, then go visit the mega-milk production factories in California. Pig farming is an even MORE clear example. Small pig farms are good neighbors. Corporate pig farms make lakes of pig manure that it unpleasant to live within 10’s of miles of them! Corporations almost without exception make poor neighbors compared to small business. Unlike the small business owner, they have no interest in the quality of a community when the decisions are made by someone hundreds of miles away.

Again, I don’t have all the perfect answers. I tend to agree that many of the brute force regulations of the past have been failures. Instead of legislating away undesireable business structures, it would be better to have policies that remove some of the advantages enjoyed by corporations. Right now, the law treats corporations as persons. This needs more study and thought. As mentioned above, corporations don’t BEHAVE like individuals, maybe we need a different way of treating them in law.

I HATE the idea of dropping company taxes and just taxing dividends. That would put privately held business are MORE disadvantage over publicly traded corporations. I think the opposite might be better: tax the companies and place a floor on the amount of dividends and capital gains that are taxable. Make the tax graduated such that the it partially offsets the buying power advantage of large companies (i.e. Walmart) over smaller ones. Watch for loopholes like splitting a big company into multiple shell companies with effectively the same unified management.

Obviously we NEED taxes for government function. Lets just restructure them so that they encourage individual investment and entrepenuership, but put a heavier burden on the wildly sucessful companies/people who might be concentrating wealth to themselves faster than they generate wealth in the overall economy through the value added in their products.

 

[vern_humphrey]

This happens all the time. Next time you pay your taxes, you will be a participant in a whole range of the ideas of others. I am not a socialist Vern. Far from it. But there are some inequities small business face, and I’m one who favors businesses both small and large. Some of the inequities are the result of governmental partiality in favor of big business over small, and I think that’s wrong.

Then we are in agreement. The role of government with regard to business is as spelled out in the Constitution – to establish a system of weights and measures, to coin money, to establish uniform bankruptcy laws, and so on. These measures are meant to facilitate economic activity at all levels – without favoring any particular business. That’s as it should be.

 

[Ridgerunner]

Then we are in agreement. The role of government with regard to business is as spelled out in the Constitution – to establish a system of weights and measures, to coin money, to establish uniform bankruptcy laws, and so on. These measures are meant to facilitate economic activity at all levels – without favoring any particular business. That’s as it should be.

Well, there’s also that pesky Commerce Clause, giving Congress the power to regulate interstate commerce, which is most commerce.

 

[vern_humphrey]

Well, there’s also that pesky Commerce Clause, giving Congress the power to regulate interstate commerce, which is most commerce.

Yes – the purpose of which is to prevent states from erecting barriers to commerce, such as duties and tarrifs on imports and exports.

Note also the Federal government is prohibited from charging duties on exports.

 

[dacoobob]

This I find absolutely hilarious. “Free enterprise is made freer” by instituting restrictions? Aren’t freedom and restriction basically opposites?

Nope. Look at anti-trust laws: big business tends to distort the market, so “restrictions” are needed to maintain economic freedom for all, not just for the strongest or most ruthless. It’s analogous to the way in which laws against murder or theft actually promote a free society. Don’t get me wrong, I actually lean libertarian-- but I know that human nature is fallen and some restrictions are absolutely necessary for freedom (economic or otherwise) to flourish.

 

[vern_humphrey]

Nope. Look at anti-trust laws: big business tends to distort the market, so “restrictions” are needed to maintain economic freedom for all, not just for the strongest or most ruthless.

Actually, it was the government that created the conditions for monopolies – without government power, the “trusts” of the late 19th Century could never have come into existance, nor existed for long when they did.

It’s analogous to the way in which laws against murder or theft actually promote a free society. Don’t get me wrong, I actually lean libertarian-- but I know that human nature is fallen and some restrictions are absolutely necessary for freedom (economic or otherwise) to flourish.

There are indeed some needed laws – read Article I of the Constitution. But many laws have an effect opposite of their intentions.

A good example was the government taking over distribution of vaccines. That created a government monopsony (the opposite of a monopoly – one buyer, many suppliers.) The government drove down vaccine prices with its monopsony power, many suppliers went out of the business, we were forced to rely on foreign suppliers. And then a foreign supplier contaminated his batch of vaccine, and look what happened.

 

[consumedconvert]

There are indeed some needed laws – read Article I of the Constitution. But many laws have an effect opposite of their intentions.

A good example was the government taking over distribution of vaccines. That created a government monopsony (the opposite of a monopoly – one buyer, many suppliers.) The government drove down vaccine prices with its monopsony power, many suppliers went out of the business, we were forced to rely on foreign suppliers. And then a foreign supplier contaminated his batch of vaccine, and look what happened.

Interesting, this is happening all over the place. Just replace “government” with Wal-Mart or your favorite Big Box supplier, and change the industry. And we have to ask ourselves–why isn’t anything made in America (or, what’s more, our hometown or state) anymore? And what happens when China decides it doesn’t like us?

 

[rlg94086]

And we have to ask ourselves–why isn’t anything made in America (or, what’s more, our hometown or state) anymore?

That’s a good question…maybe it’s because our workers are paid too little. What we need is to raise our minimum wage even more. That way we can be competitive.

 

[consumedconvert]

That’s a good question…maybe it’s because our workers are paid too little. What we need is to raise our minimum wage even more. That way we can be competitive.

Or we could be just a bit more protectionist and force the Chinese to either unpeg their currency from the value of the dollar or turn their container ships around. The price of Chinese goods would skyrocket and American industry would stand a chance again. But everyone knows the short-sighted American consumer only thinks about being able to afford five pairs of tennishoes rather than two, and not about their neighbor’s job–or eventually their own–going overseas.

That’s part of the problem.

 

[rlg94086]

Or we could be just a bit more protectionist and force the Chinese to either unpeg their currency from the value of the dollar or turn their container ships around. The price of Chinese goods would skyrocket and American industry would stand a chance again. But everyone knows the short-sighted American consumer only thinks about being able to afford five pairs of tennishoes rather than two, and not about their neighbor’s job–or eventually their own–going overseas.

That’s part of the problem.

That is a very uncharitable statement to make about people of lesser salary who shop at Wal-Mart to save money and take care of their growing families. I guess you would direct them to pay for more expensive goods and forego sending their children to the Catholic school they’ve scrimped and saved to send them to?

 

[consumedconvert]

That is a very uncharitable statement to make about people of lesser salary who shop at Wal-Mart to save money and take care of their growing families. I guess you would direct them to pay for more expensive goods and forego sending their children to the Catholic school they’ve scrimped and saved to send them to?

OK granted, partially. But I won’t take back the statement that the American consumer tends to be short-sighted. Short sightedness seems to be almost a national characteristic for us.

But should the American consumer pay for more expensive goods? If we want to be fair to the American manufacturer, yes. If we make China unpeg its currency it would have that effect, and we would see manufacturing jobs start expanding in this country, because, as I said, the US manufacturer could compete again.

If the consumer did finally end up paying higher prices, then maybe little Johnnie’s dad could get a job that would enable him to send him to a Catholic school. But enough red-herrings.

Do you dispute my point?