Question

15. Laws that encourage businesses to stay small are often very popular. The laws governing Indian shirt tailors discussed in this chapter are just one example. What are some noneconomic (e.g., social, moral, ethical) reasons why voters might want businesses to stay small? What are some economic reasons they might want businesses to grow large?

Answer 1

Some non-economic reasons why businesses prefer to stay small are –
-The business owners are risk averse. They do not want to delegate responsibility or take professional help.
-Expansion and delegation means allowing non-family members to hold important positions. This create resistance within the family.
-Small business owners have trust issues even with their own children. They don’t believe in the younger generation to try out new approaches and consider as wastage of money. It seems too risky to try out something different and prefer to maintain the status quo.

Some economic reasons why small business want to grow are –
-Profit motive is one of the major reason.
-Small firms have high average cost but scaling up the business lead to reduction in cost due to economies of scale.
-Another reason for growth and expansion can be to diversify risks.