An Assessment of the Small-Firm Debate in the United States

Abstract

In this article I critically assess the ongoing debate regarding the role of small to medium-sized firms (SMEs) in economic development, and take the position that these firms are critical elements of local development and political economy. My discussion encompasses research findings from a variety of national contexts, but the general focus is on the United States. I dispute neither that large firms are important agents of change and wield tremendous power nor that SMEs may be problematic regarding either corporate competitiveness or social welfare. The stance adopted here is that questions are misguided because they focus on firm size as an independent variable to explain job generation or firm performance. Following a critical overview of data-related and analytical issues, I argue that problems as well as tactics conventionally associated with large firms may also characterize SMEs as they develop strategies to cope with new pressures in the global economy. Corporate culture, including the culture of both labor and management, as well as ability and willingness of labour and management to collaborate and implement new strategies, condition firm behavior and affect competitiveness, irrespective of firm size. Substantial variation in context (national as well as subnational) also affects firm behavior and prompts reevaluation and empirical substantiation of conventional assumptions about firm size that have governed the debate. Some SMEs may contribute to local economic development through a variety of processes. However, sanguine views about SME competitiveness must be tempered by the understanding that corporate welfare commonly occurs at the expense of worker welfare. This latter problem is considered inherent in the traditional Anglo-American Taylorist approach to production, irrespective of firm size. General policy guidelines are offered to integrate goals of production and consumption so that policies to develop corporate and worker welfare reinforce rather than counteract one another.