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Italy’s Small Business Problem

By Matthew Yglesias  

"Italy’s Small Business Problem"

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Jared Bernstein cautions against the over-lionization of small businesses in the New York Times. I agree. The best evidence for skepticism continues, I think, to me the fact that if small firms were so fantastic Italy and Greece would be the economic superstars of the western world:

The way a healthy economy works is that you start with a bunch of firms and then it turns out that some of those firms are better-managed than others. The well-managed firms expand while the poorly-managed firms go out of businesses. At the end of the day, then, you wind up with the majority of workers working for relatively well-managed firms. Because the firms are well-managed, the workers are more productive and earn the well-known-in-the-literature large firm wage premium. Alternatively, you can have an economy like Italy’s with lots of barriers to competition so that poorly managed firms stay in business with low productivity and low http://thinkprogress.org/yglesias/2011/10/24/351171/italys-growth-disaster/”>a stupendous growth disaster.

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