During the 1970s the long standing trend towards centralisation in the organisation of business ceased, and was reversed in many advanced industrialised countries as the share of employment in small enterprises and establishments began to increase. The article documents the important developments in the size distribution of production of the six largest OECD countries, and examines various explanations for the changes, such as the business cycle, the sectoral recomposition of the economy, labor cost advantages in small firms, and the spread of flexible specialisation. It also discusses potentially unfavourable effects of these changes on wages, working conditions, and industrial relations, and proposes institutional reforms to mitigate, or avoid, such effects.
On the basis of an analysis of the small firm sector in the larger economic, social, and institutional context it is argued that the individual small firm lacks sufficient resources to compete effectively with large firms. To overcome these deficiencies it either has to depend on resource transfers from large enterprises, i.e., on a foster relationship, or be linked to a community of small firms, such as the industrial districts in Italy, in which productive resource are jointly procured, developed, and utilised, commercial services shared, and intermediary institutions created to elicit and maintain interfirm cooperation. In this way small firms can become parts of “big” organisations, enjoy many of the advantages possessed by large firms, and consequently offer jobs of comparable quality.