a return to human capital(ism)
The change in the business environment these last years as disrupted our relation to consumption and has eroded the balance between SMEs and MNCs role in the global economy. One can wonder: is it a threat to SMEs and labour?
Capitalism: a concept from the past
Are big corporation running the world?
Ocean Vuong, a Vietnamese poet, in his book "On earth we’re briefly gorgeous" recounts that, as a teenager, he used to choose to drink ‘Sprite’ to rebel against ‘Coca-cola’. Little did he know that ‘Sprite’ and ‘Coca-cola’ were both owned by the same company.
E.F. Schumacher, in his book "Small is Beautiful: Economics as if People Mattered", explains that, in his opinion, a man needs two things: freedom and order. The freedom to choose what to consume (Sprite or Coca-cola) and the order that enables this freedom of choice (the large-scale unity and coordination required for the global distribution of ‘Coca-cola’ and ‘Sprite’ can only be achieved with its parent company’s influence).
Is bigger really better? In my opinion, globalization is a very important and just phenomenon that, if used well, can allow the world to reach both economic and social unity. Nonetheless, I do not believe that bigger is always better.
The rise of SMEs?
According to the World Trade Organization (WTO), small and medium sized enterprises (SMEs) represent over 90% of the businesses in developed economies. This shows that globalization doesn’t only lead to an increase in Multinational Corporations (MNCs), but also to a sharp increase in SMEs. As the world’s economy continues to grow, this will only amplify. Large companies will provide the world with a network that enables SMEs to have a more global influence. They will provide the order Schumacher refers to by giving the business world a structure to follow. Consumers however, will never want to give up on choice, and this can only be provided by small producers that differentiate in their production of similar goods.
There are virtues to being small that MNCs will never be able to achieve, and advantages that SMEs have nowadays thanks to a more global market that would not exist without MNCs. Man’s need for freedom and order can only be achieved if MNCs and SMEs work together.
SMEs in front of global crisis
Let’s take the impact of COVID-19 on the global economy as an example. This pandemic is making it harder for small businesses to strive as they rely on human contact and local economic activity. As small businesses started to close down, larger MNCs like Amazon have had an increase in business. If we take Amazon as an example, we can see that while, in April, 3-4 million people were losing employment each week in the US, Amazon was hiring hundreds of thousands of workers to satisfy their increasing demand.
This situation worked in favour of companies like Amazon because at that time, the world population had a very limited freedom. We were all in lockdown, trying to find convenient ways to get what we needed and companies like Amazon provided the perfect solution. What if small businesses could use Amazon’s large network of clients to competitively sell their own goods? Would that restore consumers with the freedom of choice the pandemic has limited?
Businesses and human capital
The concept of economies of scale and globalization is correct and I support it. What we have to do now is ask ourselves how do we plan on using it? How can we take advantage of these concepts and use them to work in a more sustainable way? How can they enhance man’s labour?
It is important to remember that businesses serve people. The world economy is built around individuals and their needs. In being economists, we sometimes need to put aside numbers and remember that we are serving human beings, and the only way to do this well is by observing them and understanding their real needs. What makes people strive? What makes them want to reach their full potential? Only a society led by leaders who want to enable individuals will reach continuous growth and prosperity.
Both local and global businesses are essential in our growing world. Globalization allows us to expand our reach, to spread our wings. Does that mean we don’t need roots?