Small versus big business

In conversation recently I observed that the NDP in Alberta really aren’t particularly business friendly. Somebody else quickly sought clarification; small business or big business? They asked as if the distinction were significant; being friendly to small business is good, and being friendly to big business is bad.

There seems to be this idea going about that big business = evil, but small business = good. Let’s consider that more closely.

The idea seems to be that small businesses are somehow more “in touch” with local people, that they represent honest, hard-working individuals instead of money-hungry, profit-seeking, nameless and faceless shareholders who see only their wallets. You know, the generally morally repugnant type of people who only think of themselves and not others.

These caricatures will have to wait for another day, for now let’s consider the alternative; a world with only small businesses and no large businesses.

Such a world, I contend, would more or less throw us back to the stone age. Or, perhaps, the early industrial age at least. Because here’s the kicker in this glorious vision of humanity; small businesses need big businesses to survive.

Let’s consider, for example, a small business owner who works with concrete. We need these guys to pour the foundations of our homes, so it’s an important small business to have around. So how does this small business require large businesses in order to survive?

Do you suppose the business owner has a truck? Probably? And who manufactured that truck? Probably Ford, Chevy or some other company like that. A big business. Why are trucks the domain of large businesses? Two reasons; R&D and economies of scale. The Research and Development that goes into automotive technology is an unfathomably large expense so it takes a very large company with very large profits to subsidize those initiatives. Technology has come a long way from the days of the Wright Brothers making a small airplane in their shop.

As I have been working on the development of the RazerLift, the R&D investment necessary to bring reliable technologies to market has really hit home for me. The RazerLift is a relatively simple device (at least, compared to a truck), but the amount of time and money necessary to get it from a concept in my head to a product on the shelf has been far greater than I ever would have imagined. Now if I extrapolate my own experience out to the development of an entire truck, clearly the amount of money, and the number of engineers, required to turn that into a reality is so far beyond anything small companies could realistically be expected to accomplish on their own.

[As an example, the car company Tesla, which is a relative newcomer on the market, was founded by an individual with… shall we say… unusually deep pockets. And Tesla does have over 14,000 employees, so it isn’t exactly a couple of guys in their garage.]

Economies of scale allow the trucks that these companies manufacture to actually be affordable for the concrete worker. Because these big businesses are able to buy parts in extremely large quantities (and that definitely isn’t cheap!) they are able to reduce the price of the finished product to a level that is affordable for the small business owner. Without these economies of scale, the cost of vehicles might be two or three times as high as they currently are. If the cost of buying and maintaining a vehicle were significantly higher then it would be significantly more difficult for the small business owner to get into business in the first place, and stay in business after that.

What about the cement that this company uses to build your house? Here’s a video describing the process of cement creation. As you watch it, ask yourself if cement can possibly be made by a small company with only a couple of employees and a relatively small annual budget.

Obviously not. The entire process of creating concrete (at least, at the scales needed in our present society) necessarily requires large companies with massive operating budgets and large scale, complicated, equipment.

Lastly, even if we could somehow imagine a world with small businesses creating enough cement for everybody to use, small businesses cost-effectively making vehicles and so on, some cement projects simply aren’t small. If you want to make a bridge that crosses a large river, and you want to make it out of cement, that’s a big project. It’s going to take a lot of engineers – at a large engineering firm – a lot of time to design. It will require cement in large quantities, probably from a big business. It will require complex machinery manufactured by big businesses.

So many examples could easily be multiplied. Do you enjoy the ability to hop on an airplane and travel the world? Have you ever stopped to think of how many people work at Airbus, or Boeing, the companies that manufacture these aircraft? What kind of annual revenue these companies work with? Have you considered how much R&D time and money is required to bring some of these aircraft to market so that you can sit in relative comfort and safety as you criss-cross the planet?

Or, consider the building and maintaining of roads. The government of Alberta invests billions of dollars to build and maintain roads in our province, so when they hire private sector companies to do some of that work do you think they look for a couple of guys working out of their garage? No, such mega-projects require mega-companies with mega-equipment, mega-budgets and mega-personnel. All so that you can hop in your vehicle and travel with relative ease, and in relative safety.

What about housing? Do you like the concept of affordable housing? Well the affordability of a house will be directly tied to the affordability of the supplies needed to build the house (among other factors). How is it that we are able to enjoy relatively low prices for lumber? If you guessed, “because lumber providers are large corporations” you would have guessed right. Weyerhaeuser is one of the biggest around, employing over 13,000 people and generating revenues in the billions of dollars annually.

Again, not exactly a ma-and-pa shop, and we enjoy affordable housing because of the magnitude of their big business.

As much as we might like to vilify big business and cheer when governments raise taxes on them, to get our “fair share,” we really should be a little more cognizant of the central role that big business plays in everybody’s lives, even the existence of small business. Small business would be almost impossible without big business because they rely on big business for their computers, their buildings, their equipment and so much more.

As you go about your day today, take note of the kinds of things all around you (laptop, electricity, house, vehicle, roads, food, medicine, etc) that either come from, or are intimately dependent on, big business. Then ask yourself if you really like the idea of a world without these things, or a world in which all of these things would be disproportionately more expensive and far less technologically advanced. In short, do you really want to hit the “reset” button on centuries of human progress?

If not, then thank your local (or international) big business for making that possible.

Advertisements