The Government vs. Small Business
Galbraith, John Kenneth
The Government Vs. Small Business by John Kenneth Galbraith Anciently, and still in the textbooks, it has been held that there is one type of business firm in the United States. Large or...
...Large or small, it has the same structure...
...But it is as much in the interest of those who urge firm and just regulation as those who defend the case of small business to have in mind the distinction between the structure of the large firm and that of the small...
...There is now wide agreement that the income/price spiral is central to the problem of inflation...
...It may have cash resources that give it enormous leverage in relation to the company being acquired...
...And, needless to say, it is always given preferred treatment by the bank...
...Monetary policy works by restricting spending from bank lending (by raising interest rates) and thus limits the respending of such proceeds...
...If anything, the evidence is in the other direction...
...The large firm, because of its market control, can pass on the costs of regulatory compliance to consumers...
...This spiral has been most strongly attacked in recent times by monetary policy...
...Where people, by the nature of their work, need a degree of freedom and independence and are out from under the eye of a boss, no other form of administration serves so well...
...Agriculture comes in this part of the economy, as does construction, much of the service John Kenneth Galbraith is the author of The Age of Uncertainty and professor emeritus,oj economics at Harvard University...
...The small-scale companies are not about to disappear from the American economy, for we will always have the individual entrepreneur...
...And, without retreat on regulatory objectives, there should always be consideration of cost and reporting requirements for the small firm...
...We have had a mutually remunerative relationship, and I am on friendly terms with the editors...
...And what may be agreeable in economic policy and necessary and tolerable in regulatory policy for the large corporation is frequently disadvantageous or difficult for the small firm...
...I trust that it won’t get around to locking the doors after the horses have been stolen...
...The exrailroad had no experience in the book business...
...The Effects of Inflation Control The small company is subject in much greater measure to external market forces that it does not control...
...The large corporation is far more likely to have resources from its own earnings...
...So it is the small firm that is hit first and hardest by monetary policy...
...Credit is generally vital for the small firm...
...What this means, in effect, is that modern economic, regulatory and c o r p o r a t e policy can e a s i l y discriminate against the small firm...
...But this sort of thing t o t a l l y preoccupies the management and has a deeply adverse affect on the morale of those concerned with the day-to-day editorial, sales and other operations of the company...
...The different positions of the large and small firm make the latter dangerously subject to the expansion-minded whims of the large corporation with its greater resources in loose and available cash...
...To be specific, the large enterprise has, as an aspect of its size, substantial control over its prices and costs...
...The large firm has accountants, lawyers, and a large bureaucracy to deal with the problems associated with regulation...
...All regulatory policy should have categories...
...As a result, returns are far less secure...
...And the competitive market remains a much greater reality for small firms in general...
...But who is borrowing money...
...Characteristically, it is the small firms-housing and construction being the major but by no means the only examples...
...In Washington, legislative action and economic policy are characteristically the same for all companies...
...A modern economy cannot work without substantial, indeed, extensive public regulation-on the environment, occupational safety, consumer protection, land use, and a myriad of other matters...
...The small firm cannot...
...There is no future for small business in a crusade against regulation per se...
...Increases in salaries and wage income shove up prices...
...It is relatively secure in its market position...
...In the not distant future, the Congress will have to become deeply concerned with this issue...
...But that is not to say that the small firm needs no continuing help, for it does...
...My attention has been specifically attracted to this danger in recent weeks because it is a problem that was faced by the publishing company with which I have been associated for some 25 years...
...And the lack of protection against the corporate takeover of smaller firms puts any successful, medium-sized firm with publicly owned stock in danger of being gobbled up by a larger firm...
...The higher prices pull up incomes...
...Minimum prices of t h e Department of Agriculture aside, a farmer has no such control over his prices...
...No one, I must emphasize, should weep for authors, at least for those whose books are bought and sold...
...Occupying the other half of this economy are some ten to 12 million small firms...
...By treating large and small alike, one treats them very differently...
...7his article has been adapted by him from a statement he delivered to the House Small Business Committee...
...It has power in its advertising to persuade its consumers...
...In the large firm, the influence of the ownership interests, expressed through the board of directors, is small and diminishes progressively with the age and size of the enterprise...
...The small firm is normally operated by the owner and a small staff in contrast to the bureaucracy or technostructure of the large enterprise...
...1 have no ownership interest in the company of any kind...
...If it must borrow, it can use its market power to pass the higher costs of money on to the public...
...A new task imposed on a large firm is imposed on the organization...
...The small enterprise does not...
...One of the mysteries of our time is how readily and completely small business and its representatives have been gulled into the acceptance of monetary policies that could not be more precisely designed to do them damage...
...The initial effect is obviously on those who borrow money...
...A locally owned and controlled New England firm, it is well managed, has been modestly but consistently profitable and so remains...
...The motivation, in many cases, is not to improve the management and earnings of the small enterprise...
...Regulation The second area of discrimination has to do with regulation...
...No onz concerned with small independent businesses can stand by while this proceeds...
...And no one doubts that a frequent reason behind a takeover is to get hold of the cash reserves that have been acquired by the smaller enterprise...
...And to some extent it can borrow against the assets of the firm that is being acquired...
...Being small and subject to the market, such firms cannot pass the higher interest costs on to their customers...
...The more usual motivation is empire-building...
...Small businesses have been the victims of a belief that all American companies have the same characteristics, and as a result the small firm has been subject to the same policies as the large...
...A n t i - i n f l a t i o n a r y policy a n d regulatory practice can hurt small businesses while leaving large ones relatively untouched...
...Its offer or bidding can thus be made attractive to all but the most loyal of investorowners with a further threat of loss if they do not seize their opportunity...
...In specific areas-manufacturing, banking, insurance, telecommunications, air transportation, and other industries-the concentration is even greater...
...The public will not allow any return, whatever the level of emotions, to the socially destructive tendencies of the past, nor should it...
...it had no local identification with Boston or New England...
...The discrimination in anti-inflationary policy is severe, even egregious...
...And there is worry, inevitably, that cash reserves prudently and carefully built up over the years might be lost in connection with such a takeover...
...For many weeks the company struggled with a threatened takeover by a former western railroad...
...In fact, nothing could be further from the truth...
...As the economy approaches fuller use of capacity and its labor force, this cycle of aggravation and response intensifies...
...sector, and most artistically based enterprises...
...While the ex-railroad has recently abandoned its efforts to gain control of Houghton Mifflin, I can think of few problems more urgently in need of congressional attention than this takeover wave...
...This is a matter where one should disclose interest...
...He reaps the reward of his own ingenuity and energy, as well as the negative reward of his own sloth...
...General Motors, General Electric, Exxon, IBM have built-in power over the prices of things they sell...
...With the small firm it is imposed on the owner...
...The takeover business is currently booming as never before...
...it responds to the same motivation...
...There is not the slightest reason to believe that after being absorbed by the conglomerate, the small enterprise is more innovative, more efficient, more effective, or more profitable than before...
...Small Business by John Kenneth Galbraith Anciently, and still in the textbooks, it has been held that there is one type of business firm in the United States...
...As a glance at the newspapers will establish at this moment, the takeover process happens to be in high gear...
...The Takeover of the Small Firm The third problem, which is now most urgently in need of congressional attention, is the takeover problem...
...fewer than 2,000 companies now produce about half of all private products...
...Houghton Mifflin Company of Boston is primarily a textbook company, and it is especially distinguished in this field...
...The advantages of the acquiring firm in a situation of this sort can be very great...
...The large firm also functions as a self-directed bureaucracy...
...They have alternatives...
...On the one hand, there are a very small number of very large firms...
Vol. 10 • September 1978 • No. 6
