To pretend that there is almost any similarity between small and big businesses is absurd. Small businesses have to serve us, or they fail. Big business tries to entrap us in debt to ensure that they keep growing ever bigger. We need to rethink what we think about the private sector – and what parts of it we want to promote.
This is the audio version of this video:
And this is the transcript:
Big businesses and small businesses are nothing like each other. They might as well be like chalk and cheese for all the similarities they've got. It seems that most people don't understand that. Most especially, most politicians don't understand that, and neither do a lot of journalists. But it's really important that this distinction be understood because as long as this confusion, which presumes that big business is just a small business that's got a bit bigger, exists, we're in deep trouble when it comes to economic policy.
Small businesses have characteristics which are utterly unlike those of most big businesses who are household brand names.
Small businesses do something useful for a start. They can only survive because they supply a product or service that somebody definitely wants to buy. And I do rather stress that point.
By and large, they don't generate a market for a product. They do instead meet a need. So, vast numbers of small businesses are in the service sector doing things that people genuinely want. They're plumbers, they're builders, they're electricians, they're decorators, they're people who supply personal services of various sorts, from chiropodists to home tutors to all sorts of things like that.
Those businesses are run by craftspeople, artisans, specialists in their area, who know how to do something better than the person who buys their services can ever hope to achieve. That's their raison d'etre - their reason for being - their niche, which provides them with the opportunity to earn more than they otherwise could. Which is why people take the risk of going into self-employment in the first place by and large, because, don't get me wrong here, it's a hassle to be self-employed, and it involves more risk than employment does.
So those businesses are really important.
Some of them also grow. They tend to accumulate others who want to work for them, but they still meet the same broad criteria of actually supplying a service that somebody wants and knows they want without having to be induced to feel the need to buy.
The advertising that is undertaken by these businesses shows that. They're not out there saying, we have this new product, whatever it might be - the ultimate new dog whistle or whatever it is that they have invented. No, what they're doing is actually supplying something that already exists in reality and all they're doing when they advertise is to make people aware of their availability to undertake whatever it is that they specialise in.
Let's compare that with most big businesses. Big businesses are utterly different in type from small businesses because basically, unlike a small business, which is a bit-part player in the market of which they are a component, a big business seeks to control, manipulate, and even manufacture its own market.
The ultimate example is Apple. Apple sought to, from the very beginning of its existence, create a market for a type of PC that had never existed before, and then it expanded into iPods and then into iPhones and into Apple Music and all sorts of things, but it created a market for something that never existed beforehand.
There were similar companies in earlier generations. Hoover was an example. So commonplace was the idea that the Hoover was something new and generic that everybody wanted that we can all identify what a hoover is even though it might not be made by the Hoover company.
And that is what a large company does. It tries to create a niche that did not exist before and by protecting what it does through the use of intellectual property law for copyrights and patents and so on It makes a niche for itself where it can make what is called a super-normal profit.
A super normal profit simply means it is a rate of profit over and above that which would be made in an ordinary company which was participating in the market rather than creating the market.
Now, these large companies, because they can manipulate markets, create markets, and exploit markets, tend to earn excessive profits. And as a consequence, they do something which is quite different from small businesses. They grow very rapidly.
Small businesses tend to reach a plateau and stop. And there are good reasons for that. Normally, they only have a defined geographic area in which they can work. Or, they're run by one, two, or three people or so. And they reach the limit of their capacity to manage, and they don't want to expand as a result. They're happy. Small businesses satisfy.
Large businesses are never satisfied. Large businesses always want more. Most of the world's problems are down to large businesses wanting more.
The exploitation of the planet is very largely down to that one single goal of large business.
The exploitation of people was also, over time, for very much the same reason. Big business wanted more profit, and it got it by suppressing the terms and conditions, the wages, the rights to employment, the rights to holiday pay, the rights to pensions, the right to sick pay, and everything else that they could.
And that still goes on. You can even see it now. Labour is proposing some new employment laws, which I welcome. One of the few things it's doing which are good. And those employment laws are being challenged by big businesses as being a fundamental threat to their right to operate as they wish. Their right, in other words, to make maximum profits at cost to the people they employ.
Now, you can identify these companies. I've already mentioned one. But there are also supermarket brands, and there are also sports brands.
So, for example, once upon a time, everybody took part in the football league, and they were comparable entities. I'm old enough to remember when Ipswich Town won what is now the Premiership. It wasn't called that then. But they weren't a super normal company seeking to exploit their situation to maximise their profits. They were just the local club.
Now we have super brands. Chelsea, Manchester City, Manchester United - even though they're abysmal on the field - and others Liverpool, for example, and of course, their equivalents throughout Europe and beyond - are exploiting their brand to make supernormal profits through the sale of merchandise and everything under the sun, creating markets for things that we never knew we needed. Shirts with numbers and names on the back, for example. This is what big business does. The cost to us all has been enormous.
Because let's also be clear what big business does. Small business borrows from finance. And frankly, most small business people hate their bankers. I don't want to exaggerate, but I've never met one who had a good relationship with their bank. They all tend to hate them for their service, for their costs, for their refusal to loan, and everything else.
Big business, instead, works in cahoots with finance to keep us in debt. Small business doesn't do that; it doesn't normally offer finance to go with what it's doing. But big business does. And the reason why, is they want us to keep coming back for more whether we can afford it or not and therefore they offer us credit. And the credit that they supply means that they work in partnership with finance to keep us in place as debtors.
And as debtors, we are beholden to the system. We can't risk losing our jobs because we won't be able to pay what we owe. We can't, therefore, argue with our employers. And we are required to keep on servicing their system. Their system, which does, of course, keep on growing as a result, apparently exponentially, even though we know that the world cannot support that growth in the long term.
So big business and finance, which is a specialist subgroup of big business, which sets out quite deliberately to exploit us by offering loans which many people can't afford - as we know only too well from what happened during the recent cost of living crisis - those in combination are so utterly different from small business that it's ridiculous to say that they even are part of the same private sector economy into which they are all lumped together.
The three components I've identified now - small business, big business and finance - are utterly different. But if you're going to group any of them together, it's big business and finance.
They operate to exploit, to create new markets, and ultimately to destroy our planet in the process. While small business is entrepreneurial, takes risk, involves capital which could be lost, and which meets needs.
One of those sectors, and only one of them, is really of tremendous use to our society. Big business is not.
When it comes down to it, most of the things that big business can do could be done by small business and quite possibly better. We don't really need to innovate to destroy the planet anymore.
We don't need to be in debt to the level that we are. We could have lower house prices, for example. And we could have smaller cars, and we'd still get from A to B just as well. We could, therefore, have smaller car debts.
We could not consume as much of the planet and be better off.
We could cut our energy consumption, except that would offend those large companies who are in that big business sector who want us to consume more, not less.
We could take the steps to change.
Small business is a part of that future that is sustainable.
I seriously question whether large business is. Because large business does not work in our best interests, and by and large, small business does.
And by and large, small business could do most of the things that large business does just as well, or if not better, because it tends to be much more innovative than large companies actually are because the one thing that large companies do not want is innovation because that threatens their power to control markets, which is precisely why they buy so many of their small competitors just to kill their products.
It's time for us to rethink what the private sector is. There's a private sector that we want and should keep and should nourish. It's not the one that Keir Starmer is trying to encourage in the UK. It's not the City of London focused market. It's that which is down on your High Street or out on your local industrial estate. That's what he should be encouraging. And he's not doing that. And the cost to us all might be considerable as a consequence.
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I have never made the link between finance and big business before. It makes complete sense. Very clearly stated and thanks.
It explains the enormity of my recent vet bills and even going to the dentist.
Big bill – fear/surprise/shock – loan – interest – profit.
Yeah, well said.
Thanks
With regard to your vet bill (>40% of vet practices are now owned by huge corporates) – there is another step in the chain, after you have been stung by the bill, and paid it with a loan – you are incentives to prevent that happening again, so take out pet insurance, offered by a big corporate monopoly, without perhaps realising how close the relationship is, between the huge corporate that owns the vet practice, and the huge corporate that sells the insurance.
Big vet bills means big profits for the vet corporate, and creates the market for big profits on pet insurance.
Agreed
And they also try to sell you the very expoensive dog diet – always a rip off
Well, we have our cat insured as well and have been quoted £3500-£4500 for a CT scan because of something in her lung. That’ll take up all the insurance we have purchased for this year.
3 X-rays cost £425.
The previous vet was £750.
In an unfettered investment market like this, just owning a damned cat becomes a bourgeois act – far too expensive for normal people. And then you have to laugh at the VAT on such services whilst tax loopholes abound.
One reason why we gave up on dogs
Vets, dentists, funeral directors , as I understand it, many are acquired by hedge funds.
I find with these services, actual service i.e. being helpful and informative to the customer, is less and prices increase or they charge for things which they didn’t before. I guess it all increases the GDP and we will be told we are better off.
The US used to have anti-trust laws. My American friends they don’t hear much about them now.
The City of London has dominated our economy for 150 years. When push came to shove, they could outmuscle industry. In the 1950s/60s our industries were subject to stop-go policies to preserve the exchange value of the pound and the inflow of deposits in British banks. Eventually we had to devalue.
Thank you, Ian.
Please add GP practices, which explains why there aren’t enough of the practices, GPs and so many are from overseas. British GPs are thought to expensive to hire. Where there’s a partnership, many GPs can’t afford to buy into.
I should have added that it’s worth comparing the number of US billionaires now with when Forbes began listing them in the 1980s.
The lack of anti-trust action part explains why. Some, but not all, is due to the likes of Clinton and Obama being seduced by Silicon Valley and, to a lesser extent, Wall Street.
With regard to Wall Street, one sees how the consolidation of banks into too big to fail behemoths led to executives like Jamie Dimon*, a Democrat until a few years ago, becoming billionaires. *Friend of Obama from Chicago, but later cooled over financial regulation.
One hopes John S Warren, in particular, pipes up.
Very good explanation of different business circumstances, thank you Richard. As Ipswich were mentioned I thought you might like this. Congratulations to Mr McKenna.
https://www.bbc.co.uk/news/articles/cpv2v4ex79eo.amp
He has worked miracles. Two years in the Premier League would be another one.
Yes. Good luck to the Tractor boys!
It’s the innovations of science and technology which has enabled the individuals who started what have become the largest companies to develop their commanding positions in the global economies.
The major difference between small and large companies is their use of science and technology to enhance their business interests.
Often the individuals who had ideas were able to manoeuvre themselves into a position where the returns on the innovations of their intellectual property which has enabled them to employee more scientists to further their business interest at an alarming rate.
You don’t see this in small companies which are often run by individuals with very straightforward objectives for themselves, their families and communities.
And of course, any individual who enjoys power and becomes greedy and has a good idea may be able to take advantage of that idea to enhance their power and greed. What we are surrounded by is individuals running big companies who are interested in extending their power and greed to persuade us to buy their products using yet more science and technology in advertising and complex pricing.
If you visit the local appliance superstore you will see a range of electric vacuum cleaners from £30 to £1500. The cheapest uses simple technology to achieve the basic function whilst the most expensive ones are full of patented technological innovation which need to be paid for by the price.
We are being persuaded to part with higher prices because they are branded, expensively advertised, possibly better, will save us time or simply provide us with social status and prestige. We are being “taken to the cleaners”………….
It could be said that we as a species now live within an increasingly devastated natural environment which is entirely due to how individuals have used the advances of science and technology.
It could also be said that these wealthy individuals who have chosen these routes to power and wealth, lack empathy for others and the beauty of the world around them.
It could be said they continue in their self-interest knowing that they and their descendants will then be best placed to inherit the remains of the earth.
Meanwhile – let’s continue these discussions, look after ourselves, our families and our communities and spread our understanding as widely as possible.
We all know what you mean by small companies, the builders, plumbers, gardeners, electricians, car mechanics . . my network of these are run by people my sons were at school with. We know what big companies are — Amazon, Apple, the big builders, carmakers etc. Where do you put the dividing line?
The govt schemes put the line at 250 employees or fewer for an SMC. I think 250 is far too high to be a small company; I’d put the top end at 10-12 employees. Where do you put the divide?
I draw the line when a company controls a market – even in an area – as Wes Streeting is no doubt planning for his privatised NHS
Well said Richard.
Money and big business has destroyed, and is continuing to destroy, two areas of business close to my heart – brewing and football.
I worked for Tolly Cobbold when I was a stduent – on the brewing floor, and learned a very great deal.
The link with Ipswich Town was very strong.
Tolly Cobbold has long gone – and some good beers with it. But Cobnut was not one of them.
Thank you and well said, Richard.
On my regular visits to France / French provinces, my parents and I marvel at the breadth of small and independent businesses.
May I ask this community something that I often think about when overseas? Many Britons travel. I rarely hear observations from these trips, for example why the likes of France have such small and independent sectors, which add to the joy, and how it’s possible to make life and career in the provinces, which gets one thinking about moving out of the City. It can be anything. I often hear Britons laugh at Italian trains, but have they been on them, even in France.
As Richard brought up football, readers and Richard may be interested in: https://www.nakedcapitalism.com/2024/10/why-america-is-buying-up-the-premier-league-and-what-it-means-for-the-future-of-soccer.html. If you scroll down the comments, you will see some from Froghole. He’s a retired senior civil servant turned amateur historian.
I envy the fact that quality is an issue in other countries
We have Greggs, if we’re lucky
The French have patisseries
Thank you and well said, Richard.
That’s why I’m also thankful Mauritius takes after its French mother country in that regard.
Quite so. I read that while enjpying my after-lunch espresso accompanied by a small part of one of my favourite delicacies – a “Royal Chocolat” (made with very dark chocolat) from the local boulangerie/patisserie (in my village of about 1200 inhabitants) in rural Brittany. Not only does he make excellent bread and wonderful patisseries, he is also a chocolatier making his own chocolate.
I think it almost unkind to relate that
I hope you enjoy it!
Apologies Richard! I couldn’t resist it, but agree it was somewhat unkind of me. And yes, I did enjoy it, as I do regularly.
On another point raised, I believe the adjoining (& also excellent) butcher and superette is now owned & rented out by the municipality.
That is not spoemthing that happens here – but needs to do so. Howver, the price of property prevents it.
Colonel
is it cheaper to rent shops in provincial France than in England? I have heard several of our local shops have closed because of this rather than lack of custom.
Thast is the main reason why we have dying High Streets
Such an appropriate analysis Richard.
And seems to link in to the idea that more and more of us have less and less autonomy – less home ownership , less savings, more debt, renting rather than owning etc etc – the road to modern serfdom.
They were talking about the Premier League example this morning on R4Today – evolving into two or three leagues with increasing inequality – some with global reach and global ownership etc etc.
Maybe other aspects:
1 Takeover of national governments by global corporates , several of which are bigger than many countries – PFI one example, privatisation, stripping of public assets – ‘partnership’s ‘ between corporates extracting surplus and governments guaranteeing the risks.
2 But dont we have to understand a bit more about how globalisation and monopolisation comes about? Its the inate nature of capitalism and the economies of scale – in manufacturing – technology. Only two signifianct global passenger aircraft manufacturers, only one or two microchip makers etc .
Big pharma different again – using public funded research to turn into surplus profit – making drugs – some of which we already have and don’t need. Have never understood why – if the world is desperate for new antibiotics and big pharma won’t do it why we cant have an international non profit drug company to do it .
Only four companies seem to control global distribution of food – there must be so much surplus profit extraction.
And so many of us use Amazon , Uber ,supermarkets, cars, Pfizer Astrazenika drugs, Microsoft, Google, Apple etc etc
They have created a market but perhaps in some way we now do need what they produce – and didnt know that before they creaaed it.
Presumably there has to be some international control over global monopolies – but its not really happening .
Especially as some of the moguls like Peter Thiel – are setting out to replace democracy with global corporate monoply governance.
And the military-industrial complex – –
Difficult not to get depressed.
yisi.
Thanks
As Richard finds the lack of double entry bookkeeping by the Govt annoying ( see debate With Fazia Shaheen ) we should mention on the other side of the ledger to the growth of multinationals is the death of smaller companies .
Not all were ‘inefficient’ as in market theory. As Robert Reich reminds us regularly, we live in a world of monopoly power which seeks to eliminate competition.
That was one thing Karl Marx got right- ‘one capitalist kills many’. Capital is increasingly concentrated into fewer hands.
I don’t wish for a violent revolution. In practice they are often nasty affairs. And a mixed economy is the best model. Do we have a ‘General Theory’ which illuminates where we are and can chart a road ahead?
When I needed a small amount of work done on my front porch some years ago, I spoke to a large nationwide double glazing company, and several smaller local companies. The large company would not accept a cash payment, but insisted that I finance it, preferably over 6 months. The local companies were happy with cash.
I was surprised at the time, but not any more. It makes complete sense in the terms this video has explained.
Thank you, Helen.
I had this about 15 years ago.
A local supplier was recommended by a friend. Said supplier sourced from Germany, which did not take long. The quality of the products and workmanship were good.
Some years later, I joined Barclays and found out that one of the UK’s big two was owned by the bank, a debt for equity swap, and the aim was to sell loans, not double glazing. There’s a lot of that.
Agreed
Three years ago I went to buy a new car. Cash due to a legacy. The dealer told me they make their money from selling finance rather than selling cars.
This is always true
[…] Big and small businesses are nothing like each other Tax Research UK […]
The most annoying thing is that we have known all this, the fundamental weaknesses within the market system, at least since Adam Smith’s time, and yet government has been progressively captured by the corporate sector, and has entirely failed the small market sector.
Much, if not most post war urban planning, even up to the present day, has been dominated by satisfying the notions of individualistic car centred societies, first in the USA, and then progressively in Europe, though it was Corbu who led the modernist movement.
Zoned cities and motorways have wrecked or disfigured most of the UK’s major towns and cities.
The car once represented progress, but now it mostly symbolises the mad rush towards catastrophic climate change.
The decay of town centres across the UK, and increasing dominance of sheds on the bypass, has been entirely down to the growth of corporate retailing, with that edifice entirely propped up by advertising.
Galbraith wrote extensively on the rise of corporate hegemony in “The New Industrial State” and had done so throughout the 60s, though others like Vance Packard had aready warned of the failures of consumerism and built in obsolescence in the 50s.
Galbraith’s reward as a heterodox economist was mostly to be ignored.
It is the corporate sector which creates consumer demand through advertising, and has been responsible for the growth of monopolies.
Anti Trust ? Forget it.
It is the corporate sector which controls governments.
So the role of government now equates to that of a plutocracy, where large business interests are utterly dominant.
I wish I knew how democratic government can be reclaimed, including a rebalancing in favour of the small market sector, while we have political parties in thrall to corporate interests.
This state of affairs is sadly symbolised by the fat shaming wide boy currently overseeing English Health.
Thank you, Richard.
I forgot to add that, from my days as bank lobbyist, the banks (and their big business clients) make sure that the parties, government, regulators don’t meet small business, civil society etc. It’s odd how, when engaging Labour in opposition, there was no interest or curiosity.
Even the petit bourgeois business owners in the Tory party struggle to get an airing.
Some years ago, when I discussed this with some small businessmen who leaned left, they suggested that if PR came, the Tory party could break along these lines.
I can understand that things like say tyre fitting can be done well by small business but clearly not making tyres.
The question I suppose is how we keep ‘big business’ out of things that could be done by small business.
Following on with the theme of tyre fitters, one of our local independents has just been bought out by a chain when the owner retired so I suggest that one issue that needs to be addressed in small business’s is succession.
I understand that the French have attempted to address this but I am not sure exactly how or how successfully.
We have reached a pouint where people don’t want to fit tyres or be known as the owner of a business that does.
Many years ago I went to a talk at the Trinity Centre on the Cambridge Science Park. It was given by a ‘captain of industry’ (exactly who, I can’t recall, but I think he was boss of British Rail or something similar). The subject of the talk was “How to grow a small business into a large one”. In the discussion afterwards, one of my friends suggested that the whole talk had rather missed the point. Small business owners, he suggested, mostly don’t really want to grow. In fact they hate the nonsense of things like managing disputes over the size of employees’ waste paper bins; they just want to get on with doing what they love. The dream for many small businesses is to employ *less* people, not more, as long as they could go on making the same or larger profits. Growth may be necessary, but it’s often resented.
A great deal to agree with there. Spot on. And almost no big business person understands that.
Worth remembering that Morrisons (founded by William Morrison)
Asda (Associated Dairies) Tesco (Jack Cohen)
and Hattons (Norman Hatton, for those interested in model railways, now sadly wound down) all started out as a small businessess. Asda and Morrisons now are mostly owned by some sort of venture capital or hedge fund I believe, they also appear to have a lot of debt (as does Malcolm Walker’s Iceland, I believe)
It is also worth looking at the history of the High Street, why shopping habits changed, from the late 1800’s to now.
Why do people shop in supermarkets as opposed to individual butchers, bakers and candlestick makers.
How do out of town retail parks affect High Streets and Town Centres, same for businesses rates, public transport and car parking. I also see that business owners offspring do not want to continue with the family business, this spans across all businesses.
Why do people shop in supermarkets rather than butchers, etc? Several factors: supermarkets are open when people with a full-time job want to shop. Butchers, etc, quite reasonably are not. Supermarkets make shopping easy — car parks, etc, so you don’t have to stagger around carrying heavy bags of food. Supermarkets are time-efficient, because you can get almost all you need in one place. And supermarkets also have a large range of different foods, which no one small shop can stock. And now they will deliver, which is so useful when one is ill and not fit to go out.
There may well be better ways, but it doesn’t help to ignore the strengths of the current way.
Richard – what an excellent contribution, and it gets 3/4 there in looking at Education, which is not a business.
Nearer the mark in education terms is that the very top brands, Eton, Winchester, Wycombe Abbey and one or two others essentially hit the luxury brand market.
Other aspirational brands such as Wellington, Repton, Roedean have expanded overseas to do the jump that Jim Collins advertised, going Good to Great. Wannabee brands like Queen Ethelbergas, funded by a separate business income strand choose to run a fully painted wagon through Beijing to help that part of the world understand that boarding in Harrogate is possible.
I’m the proprietor of a local day school, set up by my parents and now run (for the last 40 years) by my brother and I. We are absolutely an artisan school, working in the local market place because people need our services, We have just shy of 1000 children on role currently, and next week’s budget is going to be catastrophic for our parents. Whilst I am taking some days off in half-term, Monday this week and this afternoon I have been painting classrooms and fixing some tech. It’s not that I can’t afford to employ staff or local tradesman, it’s just that the need arose suddenly and I have these skills. I’m on duty tonight meeting a return party of students from a trip to Paris – we have trips out to Spain, Germany and Greece concurrently, the first 3 for languages the last for Sailing. The rowers are out next week…
Parents buy our services like they would any other set of opportunities that empower their children and support the parents in their day jobs – normal and abnormal, shift doctors, nurses, lawyers and money/data counters – we do things that the local state school market has never even considered.
I’m the longest serving headteacher in the UK and probably the oldest as well, yet I don’t look to retire – I have electricians and plumbers, builders and other artisans who like me stay at work because it’s fun and we know stuff.
Which the politicians have not a ticketyboo about.
Your credentials stack.
But you are in a business that does not meet need.
Thank you to Anrigaut and Ian.
@ Ian: Yes. That goes for big firms, too. Property prices, not just rents, are the biggest factor, with the knock on for employee pay and transport costs.
@ Anrigaut: Communes often own farm land, too. I have noticed young people getting a start as maraicher and supplying schools etc. Pupils often visit. My paternal family hails from Saint-Malo, in Mauritius since 1790. A Leclezio cousin, as in the author, joined in 1792.
Richard; having run my own little niche business for many years (though now retired), Your post nails the wellbeing of the country on the head.
It is small businesses that keep communities alive, whether they be butchers, corner shops or indeed as you state, plumbers, decorators etc.
A great post!
Thanks
[…] By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future […]