The Economics of Sharing

Sitting on last week’s panel of the London Bloggers Meetup, there were quite a few if I’m honest testing questions posed to me and the other panellists. We looked at tax responsibility in the internet age, selling out to “the enemy” and whether the sharing economy was all that new after all. But one question stood out for me for its questioning of what often goes as an excepted edict, namely; Is it in fact a good thing that collaborative companies like Hire Space are helping the little guy compete against the big bad multi-national? 

My initial answer was a certain yes, but then I began to think some more, because indeed it does make social sense to want to give a small local business your cash rather than next door’s MegaHugeShop, but does it make economic sense? Does supporting a small business over a large enterprise help support the stability and progression of our national, or should I say shared, economy?

I did some digging, I could remember figures from a long ago Economics course which suggested it was the case, but what were these figures and how convincing were they, this is what I found.

There is as you may suspect a plethora of research papers on this topic, and on the top-line the economic answer very much supports what our social intuition tells us, small companies are great for the economy; they are inextricably linked to entrepreneurship and have historically been driving forces of employment and income growth (see Thurick and Wennekers, 2004). But this doesn’t answer the bigger question that we were being asked, do small businesses provide disproportionate benefits to key economic outcomes?

To answer this I delved a little deeper and came across a 2010 UK Government report on what is needed for future Economic Growth. The paper agrees with our last reference that small businesses “drive economic growth by stimulating innovation” but, and here’s the magic, it also made the important addition that small businesses make a “disproportionate” contribution to the key economic variable of job creation.

Brilliant, but can we put a number to the words I hear you ask? Well yes, yes we can! A Dutch research group backed by European communities looked at quantifying this type of statement and came back with the following; “between 2002 and 2010, 85% of total employment growth was attributable to SMEs” and what’s more SMEs have been shown to increase employment at a higher rate than large enterprises outstripping their growth by 0.5% a year. A pretty staggering feat for “the little guy”!

So there you have it, the meat to my previously spurious answer. And now, I hope you’ll join me in a raucous, heartfelt and entirely collaborative, “long live the little guy!” Because, by the sound if it, he’ll probably be our next boss.

Mine, yours, everyone’s.