Great piece! I love the perspective here. I’d just add that since all big companies were small once, a thriving economy really needs that 'pipeline' of small businesses growing into big ones. Supporting the little guys isn't necessarily a bad move by the government, even if it’s hard to get the policy exactly right. Thanks for sharing this!
A small anecdotal complement: working in debt financing, I learned that small business lending rest in large part on the quality of the collateral and, even more important, the chances to sell it in case of bankruptcy. Those features depend on the existence of a sufficiently deep market of those assets and the financial back of the players of those markets. Then, the existence of large players appreciates the worth of the collateral, allowing smaller firms to borrow, and, paradoxically, fueling competition
Hi Johan, Yes Big firms are more important than small firms in driving productivity improvements, investment and therefore growth. But this can't solve the unemployment problem if an economy has high levels of structural unemployment, especially if there are statutory, IR and conventional ("ESG"?) biases against low wages in large firms. So there is a case for reforms and investment that support small business growth and better opportunities for informal enterprise as part of an employment strategy. This is also redistributively favourable. There is no prospect of large firms "solving" South Africa's jobs crisis, except in the indirect sense that their growth facilitates the broader resource mobilisation that makes investment in "more inclusive" development possible. That is: housing, informal settlement upgrading, better trading environments for informal and small enterprises, labour intensive services, etc.
Countries don't all have to follow the same growth path. Clothing in China is dominated by large firms. In India, the rules are biased against large firms, and so the clothing sector is dominated by small firms. In both contexts, the growth dynamics are impressive. I don't think there is anything in economic theory that allows us to say one path is better than the other.
You have hit the nail at the exact point. Agree with your views. Worked myself for many years in a Multinational Environment with its South African subsidiary being one of those large employer-entities. Such firm has a tremendous influence within its immediate environment with a significant positive impact towards local economic activities, as many smaller-sized entrepreneurs develop downstream, and they utilise the benefits of risks absorbed by such large capacity, which in a sense cushion risks by default as a type of 'economic mediator’, though unintentionally. The smaller-sized entities often become mini-exporters themselves. THAT is how an economy develops: a flourishing vector attracts economic activity.
The very sad part is, that the war against large corporates by incredible hostile socio-economic policies in South Africa, eradicated huge-scale opportunities in the international domain for South African opportunists, and inflicted deep economic structural and societal harms on so many levels, one cannot see how South Africa will be able to veer away from following in the spoors of many third world African cities to some degree.
One can also barely – if at all – keep up with the developments in Technology nowadays, and technology plays a critical role in terms of optimal efficiencies in any modern-day economic entity.
The ‘ignorance’ in South Africa within so many spheres is staggering. The ‘uneducated mind’ will kill this country.
Johan, your well-researched article shook some of my "acquired beliefs" as a development economist, and rightly so. In my specialty, viz. the practicing of developmental economics, I have developed over time an almost romanticised view of "smallness being good, per se". It is quite understandable, since working at the so-called grassroots level, "small" is usually the focal point: poor individuals in a rural or urban settings, their small businesses/"enterprises"; their small client bases; their narrow or small "everything else" which make them the small/micro businesses/enterprises they are. Observing, assisting and guiding them along their developmental paths, then often is viewed in mico-economic terms.
You do recognise the role of the informal sector in your very good article. We always knew that it can only flourish in the shade of the bigger firms. What I personally experiened, during a lifetime of practising devolpment economics in the informal sector, is that upward mobility is all but impossible. Yes, there are always a few exceptions, but generally small enterprise seldom escape their smallness.
Personally, I think that a big game changer could be AI. It will/is already creating many opportunities for the smallest of the small, even as small as single individuals. It has already been reported that one-person startups developed into huge businesses, especially as far as turnover and profits are concerned. Not so much in terms of employment creation, though. But there must be certain informal sector ventures which can use AI to grow into businesses that also employ a lot of humans.
You know by now that I much appreciate your AI-wokeness. Perhaps you can get a student or two interested in testing my hypothesis "that there must be certain informal sector ventures which can use AI to grow into businesses that also employ a lot of humans, over and above impressive bottom lines?"
Interesting read. Francois Fouche, Trade unit, North West University added the angle that the complexity of the exports also matters, If we can beneficiate the raw materials before export it will help to have a bigger impact. Like you said we should also enter into global high tech manufacturing. We talk about beneficiation they talk about nano tech ,AI etc.
No, but two things can be true at the same time: that our bigger firms (and those that start an office here) need to be able to be unconstrained by legislation, or not unnecessarily so; and that small firms, as a collective, also drive economic growth and employment.
Great piece! I love the perspective here. I’d just add that since all big companies were small once, a thriving economy really needs that 'pipeline' of small businesses growing into big ones. Supporting the little guys isn't necessarily a bad move by the government, even if it’s hard to get the policy exactly right. Thanks for sharing this!
A small anecdotal complement: working in debt financing, I learned that small business lending rest in large part on the quality of the collateral and, even more important, the chances to sell it in case of bankruptcy. Those features depend on the existence of a sufficiently deep market of those assets and the financial back of the players of those markets. Then, the existence of large players appreciates the worth of the collateral, allowing smaller firms to borrow, and, paradoxically, fueling competition
I have written on this topic for Mises. Innovators are high growth firms and they are not small.
Hi Johan, Yes Big firms are more important than small firms in driving productivity improvements, investment and therefore growth. But this can't solve the unemployment problem if an economy has high levels of structural unemployment, especially if there are statutory, IR and conventional ("ESG"?) biases against low wages in large firms. So there is a case for reforms and investment that support small business growth and better opportunities for informal enterprise as part of an employment strategy. This is also redistributively favourable. There is no prospect of large firms "solving" South Africa's jobs crisis, except in the indirect sense that their growth facilitates the broader resource mobilisation that makes investment in "more inclusive" development possible. That is: housing, informal settlement upgrading, better trading environments for informal and small enterprises, labour intensive services, etc.
Countries don't all have to follow the same growth path. Clothing in China is dominated by large firms. In India, the rules are biased against large firms, and so the clothing sector is dominated by small firms. In both contexts, the growth dynamics are impressive. I don't think there is anything in economic theory that allows us to say one path is better than the other.
You have hit the nail at the exact point. Agree with your views. Worked myself for many years in a Multinational Environment with its South African subsidiary being one of those large employer-entities. Such firm has a tremendous influence within its immediate environment with a significant positive impact towards local economic activities, as many smaller-sized entrepreneurs develop downstream, and they utilise the benefits of risks absorbed by such large capacity, which in a sense cushion risks by default as a type of 'economic mediator’, though unintentionally. The smaller-sized entities often become mini-exporters themselves. THAT is how an economy develops: a flourishing vector attracts economic activity.
The very sad part is, that the war against large corporates by incredible hostile socio-economic policies in South Africa, eradicated huge-scale opportunities in the international domain for South African opportunists, and inflicted deep economic structural and societal harms on so many levels, one cannot see how South Africa will be able to veer away from following in the spoors of many third world African cities to some degree.
One can also barely – if at all – keep up with the developments in Technology nowadays, and technology plays a critical role in terms of optimal efficiencies in any modern-day economic entity.
The ‘ignorance’ in South Africa within so many spheres is staggering. The ‘uneducated mind’ will kill this country.
Johan, your well-researched article shook some of my "acquired beliefs" as a development economist, and rightly so. In my specialty, viz. the practicing of developmental economics, I have developed over time an almost romanticised view of "smallness being good, per se". It is quite understandable, since working at the so-called grassroots level, "small" is usually the focal point: poor individuals in a rural or urban settings, their small businesses/"enterprises"; their small client bases; their narrow or small "everything else" which make them the small/micro businesses/enterprises they are. Observing, assisting and guiding them along their developmental paths, then often is viewed in mico-economic terms.
You do recognise the role of the informal sector in your very good article. We always knew that it can only flourish in the shade of the bigger firms. What I personally experiened, during a lifetime of practising devolpment economics in the informal sector, is that upward mobility is all but impossible. Yes, there are always a few exceptions, but generally small enterprise seldom escape their smallness.
Personally, I think that a big game changer could be AI. It will/is already creating many opportunities for the smallest of the small, even as small as single individuals. It has already been reported that one-person startups developed into huge businesses, especially as far as turnover and profits are concerned. Not so much in terms of employment creation, though. But there must be certain informal sector ventures which can use AI to grow into businesses that also employ a lot of humans.
You know by now that I much appreciate your AI-wokeness. Perhaps you can get a student or two interested in testing my hypothesis "that there must be certain informal sector ventures which can use AI to grow into businesses that also employ a lot of humans, over and above impressive bottom lines?"
Interesting read. Francois Fouche, Trade unit, North West University added the angle that the complexity of the exports also matters, If we can beneficiate the raw materials before export it will help to have a bigger impact. Like you said we should also enter into global high tech manufacturing. We talk about beneficiation they talk about nano tech ,AI etc.
No, but two things can be true at the same time: that our bigger firms (and those that start an office here) need to be able to be unconstrained by legislation, or not unnecessarily so; and that small firms, as a collective, also drive economic growth and employment.