Performance in Small Firms

Since the 1970s it has become increasingly common for academics and policy makers alike to claim that the impetus for economic growth and innovation depends on both improved performance of existing small firms and increasing the number of start-up companies. Herbig et al. (1994, p. 37), for example, report: ‘small, new businesses have been the main driving force for the economic growth of the 1980s, contributing virtually all the new jobs during that decade’. This belief that small firms are the driving force of Western economies is a relatively recent occurrence. Up until the 1970s interest from policy makers and academics was limited and it was assumed that economic development was based on mass production by large companies (Carr and Beaver, 2002). Following the first oil price shock in 1973, many large companies were hit by severe economic problems, and increasingly began to be seen as inflexible and slow to adjust to new market conditions. Against this background, in Britain, the government initiated a comprehensive inquiry into the role of small businesses in the economy. The final report (the Bolton Report) was presented in 1971 and suggested that small firms were integral to a successful economy, thus sparking much interest in the performance of small firms.