Maybe Big Is Beautiful After All

Perhaps we love small businesses too much.

Everyone crows about how they’re engines of job growth. President Barack Obama has talked about how they “create two out of every three new jobs in America.”

Yet now comes the Bureau of Labor Statistics to tell us we might be wrong. If we consider the numbers from April 1990 through March 2011, big business comes out ahead. “Over that entire period,” the New York Times reported recently, “employment at large companies—defined as those having at least 500 employees—rose 29%, while employment at smaller companies rose by less than half as much.”

Would Peter Drucker have been as surprised as we were? Probably so. Several decades ago, Drucker was among the first to point out that small business was in many respects outperforming big business.

“I have heard for some 40 years that the small business is in trouble, and I used to believe it,” Drucker noted in Technology, Management, and Society, first published in 1970. “After 20 years, I said, ‘Where is the evidence?’ I have not seen any. In fact, the small business has done much better than any other in the last 20 years.”

By the time the 1988 edition of Management: Tasks, Responsibilities, Practices was released, Drucker was all the more convinced of the relative strength of small business. “The innovative growth companies of the last 25 years all started as small businesses,” he wrote. “And by and large the small businesses have done better than the giants.”

Because of that, he urged people to free themselves of past notions of job stability. “Most people still have a big-company mentality buried in their assumptions,” he observed in Managing in a Time of Great Change. “If they lose a job with Sears, they hunt for one with Kmart, unaware that small companies create most of the new jobs and are about as secure as big companies.”

Still, even if Drucker’s assertions about the job-creating power of small business turn out to be valid no more, his insights into the job security offered by small businesses appear to be as valid as ever.

In fact, even though big businesses may be adding more jobs, small businesses appear to offer more, not less, stability to the employees they take on. The New York Times writes: “Small-company employment seems to have been more stable in good times and bad. The numbers rise more slowly during expansions and fall less sharply during recessions.”

Do the new BLS numbers overturn your understanding of small businesses as the primary engines of job creation? And, if so, why do you think, as the Times puts it, “employment levels have risen far more rapidly at larger companies than at smaller ones”?