> Why do you think a small business can weather a downturn better than a big one?
That's not the argument. The argument is that more smaller businesses might reduce existential risk for the town even if the risk of individual business failure is larger.
To give a concrete example, let's say you have the choice between 10 small businesses and 1 large business. Let's assume that during a recession the large business has a 10% chance of failing and small businesses have a 20% chance of failing.
Now say you go through 20 recessions. With the 10 small businesses, 2 fail during every recession; new ones come in to replace them during the intervening expansions. During the recessions, you have to deal with the reduced tax revenue and the somewhat higher unemployment.
With one large business, there's an 88% chance that it will fail during one of those 20 recessions. And if it does, you (as in the town the business is based on) have nothing to fall back on to tide you over until the following expansion. As a town you trade off being pretty sure that your revenue will drop by 20% during a recession and just planning for that to having it not drop at all sometimes and drop to 0 other times. If the latter happens, your town dies.
All of this, of course, is a matter of what scale you look at things at. Maybe we should be OK with some towns dying and their residents moving to other towns. But in that case we need to actually plan for that instead of being all surprised when it happens.
That's not the argument. The argument is that more smaller businesses might reduce existential risk for the town even if the risk of individual business failure is larger.
To give a concrete example, let's say you have the choice between 10 small businesses and 1 large business. Let's assume that during a recession the large business has a 10% chance of failing and small businesses have a 20% chance of failing.
Now say you go through 20 recessions. With the 10 small businesses, 2 fail during every recession; new ones come in to replace them during the intervening expansions. During the recessions, you have to deal with the reduced tax revenue and the somewhat higher unemployment.
With one large business, there's an 88% chance that it will fail during one of those 20 recessions. And if it does, you (as in the town the business is based on) have nothing to fall back on to tide you over until the following expansion. As a town you trade off being pretty sure that your revenue will drop by 20% during a recession and just planning for that to having it not drop at all sometimes and drop to 0 other times. If the latter happens, your town dies.
All of this, of course, is a matter of what scale you look at things at. Maybe we should be OK with some towns dying and their residents moving to other towns. But in that case we need to actually plan for that instead of being all surprised when it happens.