A THEORETICAL FRAMEWORK FOR SMALL BUSINESS POLICY

A number of public policy issues have been discussed in this article, the most important of which are: 1. Small business would not need special consideration if our economy were basically a competitive one. 2. A large and growing segment of our economy has sufficient market and political power to make our economy basically non-competitive. 3. Small firms tend to provide price competition, to lead in the development of new products and processes, and to generate new innovations and new employment. 4. Government policy tends to create artificial economies of scale, giving an unwarranted advantage to the very large firm. As a first approximation, a policy of government neutrality on firms of varying size is needed. But, because of discriminations which already exist which favor large firms over small firms, special small business programs may be necessary to provide an equitable policy base. Unfortunately, programs designed to benefit all business, like the investment tax credit, tend to primarily benefit larger firms (Berney, 1979). This is the case for two reasons. First, there is a basic difference in production relationships: large firms tend to be more capital intensive and small firms more labor intensive. Second, the more complex a rule or regulation, the more costly it is for small business to use it. Consequently, even the employment tax credit, which should benefit the small firm is not used by them. Instead, it tends more to benefit the larger firm. Neutrality, as a governmental policy, would appear to demand different treatment for firms of varying size. As an example, the “regulatory flexibility” concept applies different standards to different sized firms so that the burden of regulation is more equitably distributed. The concept of encouraging or requiring financial institutions and other lenders to establish “dual prime rates” is a further example. Since small firms appear to have much higher debt to equity ratios and rely more heavily on shorter-term bank credit, they are more heavily burdened by a tight money policy which forces increases of interest rates. Thus, dual prime rates help to spread the burden of rising interest costs more equally. As many people prefer to work for themselves, equalizing the burden of government policy could only serve to increase the basic growth rate for small business, thus providing an easier start for entrepreneurs and would encourage a more rapid rate of economic growth. None of these discussions, however, argues that small business should be protected from failure. The more efficient firms will succeed and prosper, and the least efficient will not. Many currently successful entrepreneurs learn how to improve their production processes or managerial skills from their failures. What is being recommended as a first step is that government should concentrate on equalizing burdens and benefits in order to achieve true neutrality. If private economies of scale do indeed exist, new firms must grow to survive; what the government should not create are artificial economies of scale with public policy. A strong argument for further action can also be made: it appears that significant external benefits are produced by an economic system with a dynamic small business sector. Since these benefits go to society as a whole rather than entrepreneurs alone in the form of increased profits, a freely operating market without government assistance does not generate as many new small businesses as would be optimal for our society. To internalize the benefits that come from small business, governmental programs need to be devised to increase the rate of return on new, innovative small businesses. Should this happen, we could then anticipate increased rapid rates of innovation and technological change, more rapid rates of employment growth, expanded price competition in all sectors of the economy, and improved export capabilities, in short, true flexibility in our capitalistic system.     

THE PUBLIC LIFE OF ECONOMIC INCENTIVES

Many current proposals for policy reform call for the use of economic incentives. The growing application of economic incentives in a number of policy areas necessitates continuing critical examination of the claims for and the criticisms of their use. Early empirical evidence on the implementation of incentive schemes serves to shed light on the validity of some of the supporting and opposing arguments. By continuing the assessment of the viability of economic incentives, this study reveals that incentive alternatives face obstacles to use stemming from implementation problems, but political and philosophical issues pose greater threats. Nevertheless, the use of incentives can best be defended on political and moral grounds. Political resistance can be overcome and incentives can be employed effectively, if incentive schemes are understood as fostering one form of social interaction in a mixed regime.     

REGIONAL AIR CARRIERS IN CANADA: NETWORK EVOLUTION AND GOVERNMENT POLICY

Regional air carriers have grown from localized, smallscale operations in the early 1960s to national operations in the 1980s. Their expansion results from an interplay of technology, route networks, and regulation policy. Government policy on regulation first assigned regions in the 1960s and then, in the 1970s, promoted entry to trunk transcontinental routes. The initial concept of the air transport region must therefore be revised, as the role of the regional carriers now approaches that of the trunk carriers. Regulation remains a key determinant of market share, and deregulation could accelerate the convergence of regional and trunk carriers.
Dans les années soixantes, les lignes aériennes régionales n'entreprenaient que des activités locales, à petite échelle. Présentement, ces měmes lignes fonctionnent, de plus en plus, comme sociétes nationales. L'élargissement de ces lignes provient de l'interaction de plusieurs facteurs, en particulier la technologie, les réseaux aériens et la politique du gouvernement. Cette dernière a permis aux lignes régionales de passer, en 1970, d'un rle local à une présence nationale. Par conséquent, le concept original d'une région aérienne doit ětre revisé, puisque le rle de la ligne régionale s'approche de plus en plus de celui de la société nationale. La part du marché de chaque type de société se détermine par la réglementation imposée par le gouvernement, et la déréglementation pourrait accelerer la convergence des rles des sociétés régionales et nationales.     

The Spatial Hierarchical Principle in the Evolution of Modern Local Government in Scotland

During the 7970s the structure of local government in Scotland was transformed from a traditional system based on counties and burghs to a nested spatial hierarchy of regions and districts. This reform represents the last stage of an evolutionary process, uniting the formerly separate rural and urban hierarchies of local government and administration. The city region was taken to be the guiding principle for reform, and the new regions were identified mainly on the basis of town hinterlands. Throughout all reforms there has been a tendency to concentrate local government functions at higher levels of authority.
Pendant les années 1970 la structure du gouvernement urbain et rural en Ecosse fut transformeé d'un système traditionnel de comptés et bourgs en une hiérarchie spatiale de régions et de districts. Une réforme récente qui unifie pour la première fois les échelons ruraux et urbains des administrations et des gouvernements locaux, représente la phase ultime d'une évolution vers cette hiérarchie. Cette réforme a été guidée par l'utilisation de la zone d'influence urbaine comme unité de base, et les nouvelles régions ont été identifiées surtout sur la base des aires tributaires des villes. Au cours des réformes il y avait une tendance è concentrer les fonctions du gouvernement local è des niveaux supérieurs d'autorité.     

Book reviews

Derek McDougall, Harold D. Lasswell and the Study of International Relations. University Press of America, Lanham, USA, 1984, pp.370. $16.50.

John W. Burton, Global Conflict: The Domestic Sources of International Crisis. Wheatsheaf Books, UK, 1984, pp.194. $54.00.

K.J. Holsti, The Dividing Discipline: Hegemony and Diversity in International Theory. Allen and Unwin, Boston and Sydney, 1985. pp.165. $39.95.

Hedley Bull (ed.), Intervention in World Politics. Clarendon Press, Oxford, 1984, pp. viii + 198. $31.00.

Hedley Bull, Justice in International Relations. 1983–84 Hagey Lectures, University of Waterloo, 1984, pp. iii + 36. No price given. (Available from University Publications Distribution Service, Dana Porter Arts Library, University of Waterloo, Waterloo, Ontario N2L3G1, Canada.)

Benedict Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism. Verso Editions and NLB, London, 1983, pp. 160. £15.00.

Chalmers Johnson, Revolutionary Change. Second edition. Longman, London, 1983, pp.xii + 217. $13.85.

Peter Calvert, Politics, Power and Revolution. An Introduction to Comparative Politics. Wheatsheaf Books, Brighton, 1983, pp.208. £5.95.

John Walton, Reluctant Rebels. Comparative Studies of Revolution and Underdevelopment. Columbia University Press, New York, 1984, pp.xii + 230 $US36.00 (cloth), $US10.00 (paper).

E. A. Tiryakian and R. Rogowski (eds), New Nationalisms of the Developed West. Toward Explanation. Allen and Unwin, Boston, 1985, pp.xii + 394. $69.00.

Peter H. Merkl and Ninian Smart (eds), Religion and Politics in the Modern World. New York University Press, New York, 1985, pp.276. No price given.

Richard Lowenthal, Social Change and Cultural Crisis. Columbia University Press, New York, 1984, pp.viii + 252. $US29.50.

Dietrich Fischer, Preventing War in the Nuclear Age. Rowman and Allanheld, Totowa, N.J./Croom Helm, London, 1984, pp. x + 236. $27.95.

F. Dyson, Weapons and Hope Harper and Row, New York, 1984, pp.340. $24.95.

John Langmore and David Peetz (eds), Wealth, Poverty and Survival. Australia in the World. George Allen and Unwin, Sydney, in association with the Australian Labor Party, 1983, pp. 225.