One word: Competition.
Small businesses compete with each other in a vibrant economy that provides multiple alternatives to people. Massive nationwide corporate chains stifle competition and distort the normal supply and demand curves. This is how Walmart (since they seem to have become the poster child for big business) has resulted in the offshoring of thousands of good paying manufacturing jobs. Walmart is such an enormous buyer that they exert an overwhelming pressure on the wholesale price of products they carry. Companies that can’t meet Walmart’s price demands may well go out of business. New products may not be brought to market if they can’t meet Walmart’s price demands. But these are not the prices set by normal supply and demand. End use purchasers would be willing and able to pay a higher price, but Walmart makes a demand on price from the manufacturer and simply won’t carry the product if they don’t meet it, so manufacturers have no choice but to shut down American factories and start producing in China. This may in some ways be good for poor people in China, and it is good in the short term for poor people in America, but in the long term the more dominant that Walmart becomes the higher the prices are that it charges to consumers (do some comparison shopping next time, you may find that Walmart is not the cheapest on many items) and the bigger the difference becomes between the price Walmart demands from suppliers and the price it charges its customers.
OK, two words, the second is innovation. Small companies are often the ones willing to take risks on new ideas (not always products, but also new business methods, etc.). A huge corporation will always do things the same way, but a small business may try something new and different that radically alters the economy. Even if a big corporation ends up buying the idea and marketing it more effectively, they might not have taken the risk on their own. If companies become too big and drive smaller competitors out of business, then innovation suffers. And innovation is the true key to getting a capitalist economy out of a downturn.
OK, I’ll stop counting new words now. Mainly because I don’t have a good single word for this next one. Money from local businesses stays local. If you spend a dollar at the local pharmacy, then say (and the amounts here don’t matter, this is just to get the idea) 60 cents goes to the manufacturer, 10 cents goes to a local employee, and 30 cents goes to the owner of the store. The money to the manufacturer is gone, nothing to be done about that. The money to the employee is spent at the diner across the street, at the local pharmacy, at the toy store across town, on rent, etc. It gets recycled lots of times within the local economy, providing more jobs for more people locally. The thirty cents that the local owner gets also gets recycled through the local economy. Now take the case of a CVS. The same product goes for 95 cents at the CVS. Of this 50 cents goes to the manufacturer, 5 cents to the local employee, and 40 cents to CVS corporate. Now there’s only 5 cents recycling locally instead of 40 with the local pharmacy, all so one customer can save 5 cents. Let’s say his five cents savings is also recycled locally, we still have a net loss to the local economy of 30 cents.
Then there’s the issue of having a single business dominate an individual town. Look at the oil or mining boom towns that fail when the oil or mineral runs out. Something similar is happening to Detroit. Many small towns in America face similar problems when some global corporation shutters its operation on Main Street and replaces it (and others on other Main Streets) with one huge one in China, or in Alabama for that matter. It’s good for the folks where the new plant opens, but many small towns dry up completely or suffer terrible unemployment because they have all their eggs in one basket. Many small, local businesses is better for the economy than one huge global corporation building a 10,000 job operation in town. If that’s all you can get and you need jobs, you certainly want it, but you also need to have an economic policy that encourages local small businesses as well. If that huge employer is an engine plant, then it’s likely to encourage more local business in terms of suppliers, restaurants to serve workers, etc. If it is a big box retailer instead, it will stifle local small business as its only suppliers are overseas and it has its own fast food restaurant inside and doesn’t pay its employees enough to eat anywhere else. They can only afford to buy its discount groceries.
This could go on forever. There are lots of problems that occur when corporations grow too big. Some (but not all) of it is so obvious that economists have a nasty word for it: oligopoly (or sometimes monopoly). But even defining oligopoly is very difficult, and frankly, government policy no longer seems to care too much about oligopoly and monopoly. What’s the cut off? It depends, but we can start looking at nationwide and global firms, but even some of those should and need to be that big, but many don’t and shouldn’t. When we start to see competition stifled (as we clearly do in the case of Walmart) that’s definitely past the cut off.
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