PERCENT 100% CHART I BREAKDOWN OF LABOR FORCE BY SIZE OF THE EMPLOYING UNIT 1937 PERCENTAGE OF Somewhere between 10,000,000 and 12,000,000 independent economic units existed in 1937. The vast majority-more than 90 percent-of these were very small in size, employing five persons or less. Only a minute fraction (about .002 percent) of all enterprises were large enough to employ more than 10,000 persons. If attention is turned to the distribution of employment among these size groups, a more realistic picture is obtained. The minute number of units in the largest group (units employing more than 10,000 persons) employed a respectable share of the total labor force-11 to 14 percent. About 30 or 40 percent of all employment in the country was provided by enterprises employing 300 persons or more. Although there have been important changes in the business structure since 1937, it is probable that the most general conclusions which can be drawn from these data are still valid. It would be far from true to assert that American economic life is dominated by giant enterprises. Somewhere about 75 percent of all American workers earn their living through business units which employ less than 1,000 persons. The business population If the total demand for their output remains unchanged, as business units increase in size they must become less numerous. Therefore, an examination of trends in the numerical magnitude of the business population gives an inkling to the trends in the average size of enterprises. The United States Department of Commerce has prepared estimates of the number of business firms in operation in the United States for the years since 1929, by industrial groups. These appear in the accompanying table 2. By the use of similar material for earlier years published by Dun & Bradstreet, Inc., the Department of Commerce has extended its estimate of the over-all total number of firms back to 1900. Thus a record is available covering almost half a century. The coverage of these statistics is described as follows by the compilers: "The business population is regarded as including all firms outside of agriculture, forestry, fishing, and the professional services. A firm is defined as a business organization under one management and may include one or more plants or outlets; a self-employed person is regarded as a firm only if he has either one or more employees or an established place of business." * * * The figures for years since 1929 reveal an interesting divergence of movement as between different industries. The trend in the number of firms in operation has been upward, but there have been two periods in which that movement was temporarily reversed: the depression and the war. Between 1929 and 1933, the number of firms engaged in manufacturing declined by 35 precent, and the number of firms in contract construction was reduced by 21 percent. By contrast, the number of firms in wholesale trade, retail trade, and the service industries suffered only a minor reduction-less than 5 percent in each of these three industries. The impact of the war was quite different. The number of firms in manufacturing actually increased between 1940 and 1944, while a reduction of 12 percent occurred in the population of retail firms. Similar abrupt drops in the number of firms took place in wholesale trade, contract construction, and service industries. One reason is that many small entrepreneurs in these fields shut up shop in order to join the armed forces or to take war jobs. Another reason for this reduction was the unavailability of merchandise and materials in certain fields during the war. Since 1944 there has been a rapid recovery in the number of firms engaged in each of these economic areas. Table 3 compares the percentage break-down of the business population between industrial groups for three prosperous years, 1929, 1947, and 1948. The stability of the percentages over this 19-year interval are impressive. The manufacturing group took in almost exactly the same percentage of the total in each of the 3 years, although there were some shifts in the subclassifications. Wholesale trade and retail trade each showed aslight increase in their relative importance, and the field of finance, insurance, and real estate suffered a pronounced relative decline. However, it seems a safe generalization to say that the industrial division of the business population has undergone no important lasting change between 1929 and 1947. ↑ Neither the depression nor the war had a permanent effect on the division of the population of business firms as between different industries. The total number of business firms in operation more than doubled between 1900 and 1948. But this was to be expected in view of the economic growth of the • Survey of Current Business, June 1949, p. 19. country. The question is whether the business population kept pace with the national growth. This question is answered in table 4 and chart II. The number of firms in operation is compared with the total nonfarm population (the farm population is excluded, since farm units are omitted from the business population) and with industrial production. The number of firms in operation has increased just about in proportion to the nonfarm population. For each 100 persons in that population there were 3.6 business firms in 1900 and 3.4 firms in 1947. The business population has not increased as fast as the physical industrial production. Due to the great increase in national productive efficiency, the industrial output increased sixfold between 1900 and 1947, whereas both the nonfarm human population and the business population both increased somewhat less than three times. This means that the average firm now turns out a much greater volume of goods and services than the average firm in 1900, but the number of persons involved in its productive activities has not increased at all. There is no support for the view that economic activity is being gradually concentrated into the hands of a smaller and smaller group of enterprises. Relative importance of corporations Large enterprises almost invariably (except in the field of finance) take the form of corporations. For this reason an examination of the degree to which economic activity takes place under corporate control is relevant to a discussion of the business structure. A rather technical question has to be introduced at this point. In using statistics to compare the relative economic importance of two different companies, or two different industries, or two different legal forms of organization (as, for example, corporations versus unincorporated business), the question arises as to which particular statistical measurement shall be used as a standard. The figure on total sales is sometimes employed for the purpose of measuring economic importance, but it is not wholly satisfactory. Two corporations might each sell $1,000,000 worth of goods, but corporation A might perform only a final finishing touch on the $1,000,000 worth of goods it handles, while corporation B might carry its $1,000,000 worth of product through all stages from the raw material to the finished object. Under these circumstances the economic contribution of corporation B would be much greater than the contribution of corporation A, although both have the same dollar volume of sales. The value of the assets employed might also be used as a standard. This is the correct measurement to use if the object is to discover in what companies and what industries the Nation's industrial wealth is located. But this may give biased results if the purpose is to measure the relative amount of economic activity which goes on in different economic sectors. Industrial processes consist in the application of labor and capital to materials. But the proportions of labor and capital differ widely as between industries. In oil refining, for example, a comparatively small amount of labor is applied in conjunction with a great amount of capital, whereas in the food industry the ratio of labor to capital is much greater. The result is that the industry classified in the census as "food and kindred products" employs about seven times as many workers as "products of petroleum and coal," while the assets tied up in the two industries are approximately equal. For a similar reason the number of employees engaged in various branches of the economy is not a completely satisfactory measurement of relative economic eminence. While the food industry is more important than the petroleum industry, it is not seven times as important. In view of the objections to all these common statistical bases for comparison, economists have devised the special concept, "national income originating." The total national income represents the amounts realized from all productive activities. It includes wages and salaries (both those paid by private business and by government), interest payments, incomes of proprietors and partners, rents, and corporation profits. This total may be broken down by the source from which the income originates. The break-down may be made in several A break-down of national income by "industrial origin" would show the total wages and salaries, rents, proprietor's incomes, interest, and profits in each industry. A break-down by "legal form of organization" would list the total of these items originating in corporations, in unincorporated business, and in the various other legal forms. ways. The income originating in any sector of the economy is an ideal measurement of its economic importance since it measures the amount society pays for the services (both of labor and of capital) performed within that sector. It does not include the cost of materials used, since that particular value must be regarded as originating in a prior stage of production. This concept has been discussed at length because of its importance in what follows. Unfortunately this ideal form of statistical measurement is not available in all cases. The income originating in particular companies can seldom be determined from their published reports since material costs are not usually segregated from other costs. For the economy as a whole, the Department of Commerce has published two break-downs of the national income: a break-down by industries and a break-down by legal form of organizations. It is the second type of analysis which is pertinent in an examination of the importance of corporations in the economy. The income originating within the corporate sector consists of the wages and salaries paid by corporations, their interest and rental payments, and their profits. In other words, it includes the amount realized, by the corporations themselves and by others, from the economic activities which take place under the administrative control of corporations. Table 5 contains estimates of the total national income broken down to show the amounts originating in each of the various forms of legal organization. These estimates are prepared by the United States Department of Commerce, and are not available for years prior to 1929. Table 6 shows the percentage break-down of each year's total national income. About half of each year's national income is accounted for by the productive activities of corporations. The figure fell somewhat below 50 percent during the depression, and rose somewhat above that level during the war years. Between 1929 and 1948 the increase in the percentage of national income originating in the corporate sector of the economy amounted to only 2.4 percentage points. Between 25 and 30 percent of the national income arises out of the activities of unincorporated business units. This type of business has made a slight relative gain since 1929. The heading "Income originating in other private business" is a conglomerate of items which cannot be properly classified either under corporations or under sole proprietorships and partnerships. It includes cooperatives, nonprofit service organizations, mutual financial institutions, and property owned by individuals. This item has declined rather steadily since 1929, as a percentage of national income. The chief reason for the downward trend is that the rental income of persons from real property which they own individually makes up a large part of this share of the national income. Such rental income has not kept up with the growth of national income since 1929. The percentage of the national income originating in government rose during the depression years, and became very high in the war years. In 1947 and 1948 this percentage was at approximately the same level as in 1931. (It should be noted that the income arising out of the private production of goods which are later sold to the Government is not counted as income originating in government. Thus if a corporation builds a naval vessel for the Government the income involved is considered as originating in corporations. The only types of income originating in government are the wages and salaries of its own employees, and its interest payments.) A great deal of attention is continually given to the affairs of corporations by the general public, labor representatives, government officials, and the business community itself. For this reason an impression has grown up that all but an insignificant part of our economic activities are carried on by the corporations of the Nation. Chart III shows how false this belief is. Just about half of the Nation's productive activities take place under the corporate form of organization. More than one-quarter of the Nation's business is in the hands of unincorporated enterprises, and the remainder is accounted for by government, households, nonprofit institutions, etc. However, the relative importance of corporations differs widely as between different industries. Table 7 shows how much of the income originating in each broad industrial sector of the economy is accounted for by the corporations active in that sector. The figures are for the year 1929, and they are rather crude estimates prepared by an unofficial, although reliable, source. In agriculture, as might be anticipated, corporations play a negligible role. In the fields of construction and service about one-third of the business is in the hands of corporations. In finance and trade the corporate share sightly exceeds one-half |