ABSTRACT
As we saw in Chapter 3, the economists’ view of the constraints on small firms is that smallness denies access to economies of scale. This problem applies to virtually all the resources used in the production process. Economists describe these resources as the factors of production: land, labour, capital and usually also entrepreneurship. All are subject in some sense to scale economies: for example, premises tend to cost more per square foot for small surface areas; there are economies in the recruitment of skills (intensified by the lower wages paid in small firms); it is cheaper per pound to borrow £10 million than £10,000 and small firms do not have access to public securities markets; management in large firms benefits from the division of labour – a large firm can have specialists while the small business owner has to try to be an expert in everything. Not least, and as we shall demonstrate in Chapter 7, there are also economies of scale in dealing with the growing administrative requirements of regulation by government. To be sure, small scale confers certain advantages, notably initiative, flexibility, low co-ordination costs and the ability to offer specialised and personal service, as we have seen, but the constraints are formidable.
