ABSTRACT
This chapter focuses on the most interesting form, small firm networks (SFNs). A network of small firms appears to be associated with strong local government institutions. This appears to foster a more responsive educational system, more distributive policies regarding land use and city planning, a wider range of social services including child care, and perhaps more political involvement of the citizens. Less sanguine are the critics of capitalism who cite the cxternalization of social costs to smaller units. In particular they cite harder work, longer hours, less pay, no union protection, and the absorption of risk by the small firm. They have better labor practices, internal labor markets, and more social services, and there is even evidence from the United States that large, bureaucratic firms promote more cognitive complexity among employees than do small firms. In general, Japan has a higher proportion of small firms than the United States, though this gross figure can be misleading.
