On the Organisation of SMEs and Economic Growth in the USA and Japan

The total number of firms, out of which around at least 95 to 99 per cent (or even more) are SMEs approximates the degree of competition that exists in each country and within each sector of a national economy. A historical examination of the American and Japanese firm evolutions, which shows a divergence in industrial organisation between the companies in the USA and Japan provides a qualitative evidence to this role of competition. Also, the same historical trip reveals the close relationship, which prevails between the degree of competition as represented by the total number of firms and the speed of economic growth. The cross section regression model developed in this paper quantitatively confirms this relationship. Furthermore, it is suggested that the historical divergence between the American and Japanese firm evolutions is due to some precise factors such as relative abundance of resources, and other historical circumstances. Consequently, there is not a unique path of optimum growth, since what is good for the USA might not be good for Japan and vice versa. For instance, for the USA, the 'big business' type has always prevailed during the last 120 years, whereas for Japan, the smaller focal type of firms together with some huge conglomerates dominated the Japanese economy. The cross country regression model not only confirms the importance of organisational differences but also supports the endogenous type of economic growth.