Update: In praise of big business

mardi 15 juin 2010 ·

I am updating the data of one of my previous articles that you will find below this graph


As the Canadian election campaign enters its second half, and with the economy becoming the main issue, we have a lot of economic nonsense running wild. The most recent example involves Jack Layton, who wants to increase taxes on big business to fund his costly campaign promises. He buys — as the other parties do — the idea that small businesses drive the Canadian economy. We thus, according to Mr. Layton, need to lower their tax burden and reduce their paperwork in order to help them compete against big businesses.

Who does not like to cut some slack for small businesses? The left sees small businesses as Davids battling the evil and greedy corporate Goliaths. For the right, small business owners depict the ideal of the self-made man who starts from nothing and fights to get it all.

True, we should reduce government intervention as much as possible to help small businesses enter the market and grow. However, big businesses should be entitled to reduced government regulation and tax burdens too.

In 2005 businesses with over 500 employees composed 44.27% of the workforce. If we include all businesses that hire over 100 employees, they composed nearly 60% of the workforce. From 2000 to 2007, this share stayed relatively the same. But if we consider large enterprises to include businesses with operating revenues greater than or equal to $75-million, we see that they form only 0.24% of all enterprises registered in Canada (of both Canadian and foreign control). If we consider medium enterprises, defined by Statistics Canada as having operating revenue over $50-million, we get 0.78% of businesses in Canada.

The share of employment is only the tip of the iceberg. Studies in the United States and Canada have shown that workers hired by big businesses gain more than their counterparts in small enterprises — quite a lot more. Statistics Canada’s main study on the issue determined that wages increase as corporations grow and that males in big businesses from 1986 to 1997 gained between 39% and 46% more than their counterpart in smaller enterprises. Female workers gained between 35% and 42% more than their counterparts in smaller enterprises.

This remains true today. Weekly earnings get higher as the size of a business grows. In 2007, an employee in an enterprise with more than 500 employees gained 24% more than an employee in an enterprise with less than 50 employees. On top of this, economist Patrick Luciani, notes that small enterprises create jobs at the same rate as big businesses.

Moreover, big businesses can also offer generous benefits and working conditions to their employees. Big businesses possess the means to offer kindergarten for the children of employees, dental insurance, bonuses, additional formation, vacations and whatever else their human resources departments can think of to attract workers. Such benefits are less frequently offered in smaller enterprises.

Yes, small enterprises are always needed — after all, Microsoft was once a small business. But the success, performance and growth of small businesses depends more on their entrepreneurial talent than on the businesses they choose. Most small businesses that made it big (and quick) were in sectors that were just nascent — telecommunications, computers, biotechnologies. Facebook and Google were both high-growth start-ups that quickly became very big.

That is probably why a recent study revealed that the world’s most innovative companies were all very big corporations, like Google, Facebook, Apple, Nintendo, Nokia and Amazon.

Let us also not forget that small businesses depend heavily on big businesses. What big businesses don’t find profitable to do themselves they delegate to smaller enterprises. Small communications firms are often offered big contracts by big corporations to reach new markets or for major overhauls of a company image. Big corporations also hire smaller business owners to install heating system in their head offices.

Some might not like big businesses, but they are huge contributors to our economic prosperity and our international competitiveness. They say small is beautiful, but big is beautiful, too.

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Scientifiquement justes, politiquement incorrects
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Bryan Breguet est candidat au doctorat en sciences économiques à l’université de Colombie-Britannique. D’origine Suisse, il a passé les cinq dernières années au Québec au cours desquelles il s’est engagé en politique provinciale malgré le fait qu’il ne possédait pas encore la citoyenneté canadienne. Il détient un B.Sc en économie et politique ainsi qu’une maitrise en sciences économiques de l’université de Montréal. Récipiendaire de plusieurs prix d’excellences et bourses, il connaît bien les méthodes quantitatives et leurs applications à la politique.

Vincent Geloso holds a master’s degree in economic history from the London School of Economics, with a focus on business cycles, international development, labor markets in preindustrial Europe and the new institutional economics. His research work examined the economic history of the province of Quebec from 1920 to 1960. He holds a bachelor’s degree in economics and political science from the Université de Montréal. He has also studied in the United States at the Washington Centre for Academic Seminars and Internships. Mr. Geloso has been an intern for the Prime Minister’s cabinet in Ottawa and for the National Post. He has also been the recipient of a fellowship from the Institute for Humane Studies and an international mobility bursary from the Ministère des Relations internationales du Québec. Currently, he is an economist at the Montreal Economic Institute.

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