Small Firms, Large Concerns: The Development of Small Business in Comparative Perspective

Published by EH.NET (October 1999)

Konosuke Odaka and Minoru Sawai. Small Firms, Large Concerns: The

Development of Small Business in Comparative Perspective Fuji Business

History Series. Oxford and New York: Oxford University Press, 1999. xiii +

314. Tables, maps, notes, bibliography, and index. $70.00 cloth, ISBN

0-19-829379-8.

Reviewed for H-Business and EH.NET by Zoltan J. Acs, Merrick School of

Business, University of Baltimore. zacs@ubmail.ubalt.edu

The last

quarter of the twentieth century has witnessed a multitude of tectonic

developments in business, industry, and the economy. These included a wave of

mergers and acquisitions, technological change, the deregulation of business,

the emergence of global financial markets, a shift from mass production to

flexible manufacturing, the emergence of the internet as a major business tool,

and a reassessment of the role of small firms.

The reassessment of the role of small firms was stimulated by three events

that transpired over the last twenty-five years. After decades of relative

decline, small firms were seen as innovators, creators of new jobs, and

offering flexible modes of organization compared to outdated forms of mass

production. The re-emergence of small firms in an era of globalization and

rapid technological change led to many questions and concerns about the role of

small firms in industrial economics. This book takes the long view to examine

the changing role of small firms in industrial economies, the relationship

between small and large firms and the management style of small firms.

The book is organized into three parts. Part I examines North America. Part II

looks at Europe including the United Kingdom

, Germany, France and Italy.

The third part looks at Japan in much greater detail than we are accustomed to

seeing.

In chapter one, Philip Scranton takes up some familiar themes, purporting to

expand the object of research concerning small business beyond manufacturing,

embracing a wider choice of topics such as entrepreneurship,

and the role of minorities. Several industries are examined including

retailing, doctors and lawyers, and services. It is important to remember that

in most industries outside of manufacturing most establishments were much

smaller than in manufacturing and therefore the issues were different. This

becomes important especially in the last decade of the twentieth century as

the service sector becomes the primary creator of jobs.

The book starts out with a familiar theme. Before the emergence of mass

production and Taylorist work organization most firms were small. So in some

sense it is the establishment and growth of large business that is significant.

Starting with the growth of trusts in the late nineteenth century, most of the

twentieth century has been characterized by the growth of large and giant

corporations. Witness the emergence of U. S. Steel, Dupont, General Motors,

Ford, IBM, Exxon, Merck, General Electric and so on.

Similar trends can be found in most industrialized countries. It is against

this legacy that the current book tries to make sense out of the continuing

persistence of small firms. In this development small firms were viewed as

inefficient, socially less

desirable because of lower wages, and less mechanized techniques of production.

As Mansel Blackford makes clear in chapter two, the relationship between large

and small firms is a complex one. In the United States there is a strong public

policy infrastructure and a strong political sentiment for the importance of

small firms in maintaining social values, democratic institutions and economic

vitality. It is impossible to understand the relationship between small and

large firms without taking this value

system into consideration.

In chapter three, Kris Inwood looks at the Canadian experience in 1871 with the

goal of uncovering the characteristics of the Canadian experience. The purpose

of this chapter is to look at Canada on the eve of industrialization

. This carefully written chapter lays out the origins of an industrial

structure that is different from most other countries. Here it is not a

populist agenda that is driving the industrial landscape but perhaps the role

of family business, unpaid labor and small scale production.

Part II brings together the experiences of four European countries with

different traditions. In France and the United Kingdom small firms have played

a much less important role than in Germany and Italy.

In chapter five, C.F.

Pratten notes that the United Kingdom was the home of the industrial

revolution. However, over the years the small firm sector had declined and has

not been an important part of the economy in the twentieth century. And chapter

six, by Michel Lescure, explores reasons for the difficulties that French

small-and-medium enterprises (SMEs) have faced in the twentieth century. The

reasons are changing consumer demand,

challenges made by big corporations and by state policies, the evolution of the

financial system and the overall decline of the local production system. In

Germany and Italy the picture is quite different. In Germany,

the small firm sector occupies a central role in the economy. As pointed out by

Ulrich Wengenroth, this tradition grew out of two

pre-industrial traditions, the craft guilds in the cities and the putting out

system in the rural areas. The term-Mittelstand-literally middle-estate, has a

strong corporatist overtone. Mittelstand has always been a defensive concept,

very unlike the recent optimism for highly innovative small business in the

United States.

In chapter seven, Aurelio Alaimo presents a historical study of Italian

institutions. While there has been enough written to fill a large warehouse on

the industrial development of England, Italian historians have shown a clear

preference for the study of the pre-industrial economy.

Industrialization in Italy was viewed as just a special case of latent

development. This is now changing with a new generation of historian playing

close

attention to Italian industrial development. These studies are summarized and

may lead to important contributions regarding the industrial structure in

Europe and comparisons internationally.

The last four chapters (Part III) examine the role of SMEs in

Japan. In Chapter eight Johzen Takeuchi examines the historical origins of the

SME sector. This is important because while some identify Japanese success in

the last quarter of the twentieth century with the growth of giant

corporations, Japan has one of

the largest concentrations of SMEs in the manufacturing sector. A heated

debate has existed in Japan for years about the relative contribution of SMEs

to economic growth. This chapter examines the background of industrialization

using a variety of factors including market conditions and skill formation.

Chapter nine, by Takashi Abe, examines the developments of the putting

out system in modern Japan. In Chapter ten, Minoru Sawai examines the role of

technical education and public research institutes in

the development of SMEs in Osaka between in the inter war period. Osaka

continued to be one of the largest industrial centers in Japan and a virtual

kingdom for SMEs.

This chapter draws attention to the importance of technical education in the

development

of the SME sector. The last chapter, by Konosuke Odaka,

examines the policies used to promote SMEs in Japan after 1956. The chapter

considers the programs to fund SMEs as a part of Japanese industrial policy.

How to evaluate this program and understand its success in the Japanese auto

parts industry is presented.

This book has taken us through an interesting and detailed history of the role

of SMEs in industrial and social organization. The focus has been on the role

of SMEs in economic growth, the relationship between large and small firms and

small business management. What we learn from this book is that the development

of market structure is a rich and complex process that has deep roots in

civilized society.

If one were to be critical, one might have wished for more international

comparison between countries, or at least some commonalties drawn out. An

obvious subject would be Japan and Germany, where in both cases small firms

have deep roots in the institutions that are pre industrial, and in both

countries SMEs are perceived to have contributed to industrial development and

economic growth in the twentieth century. Canada and Britain offer a similar

possibility for different reasons.

There is, however, a deeper and more troubling issue that has

been missed by the authors. After examined two hundred years of SME history

how can one fail to see that SMEs play an important dynamic role in economic

development? This point is surely evident when one thinks about the industrial

revolution in England,

the rise of giant firms in the United States and the .com revolution currently

underway.

What is important about small firms in not how they are managed, or what their

relationship is to large firms, but how they are born and how they grow into

large fi rms. In other words, small firms are important not so much because of

their job creating prowess, or their organizational flexibility, but because of

their ability to innovate and affect industry structure. Surely this is the

story that future historians

will tell when they write the business history of the United States at the turn

of the millennium.