The missing middle: firms in developing countries
Economic commenters weigh whether developing countries should deliberately foster larger, more productive firms instead of relying on a vast base of tiny, low-capital businesses. Some point to places like South Korea and Singapore as examples of state-enabled industrial consolidation and foreign direct investment, while others warn that privileging big companies can entrench monopolies, corruption, and reduced worker options. The exchange also questions simple “growth at all costs” narratives, probing how firm size, productivity, regulation, and political structure interact to shape living standards and long‑term prosperity.
Role of firm size in development
- Many argue larger firms enable capital-intensive investment, economies of scale, better pay, and global competitiveness; lack of big firms is seen as a binding constraint in some developing countries.
- Others stress productivity over headcount: small, highly productive firms can be more valuable than large, low‑productivity ones; “command economy–like” coordination problems and bureaucracy can make very large firms inefficient.
- Some note sectoral differences: heavy industry favors large scale; software and specialized manufacturing (e.g., German Mittelstand) can thrive at small/medium scale.
- Concern that promoting “big” often means entrenching oligopolies, political capture, and fewer choices for workers and consumers.
Examples of national growth models
- Singapore and South Korea are cited as cases where strong states subsidized and attracted large firms (semiconductors, petrochemicals, GLCs), with high living standards as evidence of success.
- Counterpoints: Singapore’s model relies heavily on foreign firms and is hard to scale to large countries; domestic firm creation there is seen as weak. China’s more recent slowdown and debt problems are used to question “unfettered growth.”
- Greece is mentioned as hard‑working but lacking large-scale industry, limiting its EU competitiveness. Germany’s many productive mid-sized firms are presented as an alternative model.
- One thread proposes Argentina’s current liberalization/deregulation as a live experiment in shrinking the state and regulation to spur growth.
Growth ideology and welfare
- Some criticize “line go up” thinking (GDP and firm growth as the main goal), arguing for sufficiency, sustainability, and equality over maximum growth.
- Defenders of free markets respond that countries embracing markets (US, Japan, Germany, etc.) achieved higher living standards; migration flows are cited as revealed preference.
- Disagreement over metrics: GDP vs GDP per capita vs broader quality‑of‑life; consensus that no single number fully captures welfare.
Antitrust and market power
- Long subthread on Microsoft’s browser bundling: some see it as clear anticompetitive dumping that harmed competition given dial‑up frictions and default bias; others argue Netscape lost mainly due to quality and that consumers benefited from free browsers.
- This is used analogically to discuss how big firms interact with regulation and why politicians favor them.
Labor systems and efficiency
- One branch debates whether slave or coerced labor ever outperforms free labor. Examples from US North/South, West Indies, and penal labor are used to argue free labor economies ultimately outcompete slave systems, though local short‑term efficiencies and mixed systems complicate the picture.
Critiques of the article
- Several readers find the piece vague on mechanisms and policy: it notes a “missing middle” but offers few concrete, corruption‑robust ways to grow productive firms without just empowering entrenched elites or foreign giants.
- Others see it as repackaging basic micro/industrial‑organization insights (firm dynamics, trade liberalization, information technologies) without adequately addressing causality, replication, or confounders.