Regulating Work in Small Firms: Perspectives on the Future of Work in Globalised Economies

Exploring the diversity of small firms, this contributed volume focuses on the crucial topic of work and the ways in which it is regulated, and offers reflections on the future of labour more generally. Traditionally managed through informal and adaptive processes, small firms allow us to understand the challenges and opportunities facing larger companies within an increasingly fragmented global production system. Analysing the case of Italy, a country characterised by a high number and wide variety of small firms, the authors draw on the results of a survey involving over 2,300 firms and face-to-face interviews with owner-managers working in 60 small and micro firms across several different sectors. Providing detailed analysis which will be useful for scholars of human resource management and small business, as well as managers, practitioners and policy-makers, the book enables a better understanding of the world of work in a globalised economy.

• Language: English
• Publisher: Palgrave Macmillan
• Release date: Oct 18, 2019
• ISBN: 9783030218201

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Part IIntroduction

© The Author(s) 2020

I. Regalia (ed.)Regulating Work in Small Firmshttps://doi.org/10.1007/978-3-030-21820-1_1

1. Regulating Work in Times of Productive Fragmentation

Ida Regalia¹  

(1)

University of Milan, Milan, Italy

Ida Regalia

Email: [e-mail]

Keywords

Regulating workProductive fragmentationGlobalisationSmall firmsAnalytical frameworkSocial embeddedness of economy

"Anti-globalisation is, of course, a nonsense". These were Ronald Dore’s (2003) opening words at a conference at Bocconi University in Milan in December 2002, during which the author discussed the governance methods of large corporations in the globalised economy. Those who are aware of the analytical work of the English sociologist, recently passed away, will quickly realise that the statement was not at all an acritical acceptance of trends that should be viewed as uniform and inevitable; he was simply emphasising real data that need to be taken seriously, regardless of whether one approves or one’s own personal preferences. Paraphrasing, one may similarly say that "Being anti-small firms is, of course, a nonsense". In fact, the ubiquitous presence of small firms in advanced economies is a reality that it makes no sense either to glorify or demonise, but which must be taken into serious consideration.

However, as a number of authors have observed in various contexts (Birch 1981; Rainnie 1985; Brock and Evans 1989; Blackburn and Smallbone 2008; Acs and Mueller 2008, among others), small firms have long been treated as anachronistic to a greater or lesser extent; and rather limited, and in any event inadequate, attention has been paid to them if we consider their actual quantitative weight. Leaving aside the reality of small companies in emerging countries, which is a peculiar situation in many respects, and which would require separate consideration, we see that according to Eurostat (2018, 1), in 2015, the overwhelming majority (92.8 per cent) of enterprises in the European Union’s non-financial business economy were enterprises with less than 10 persons employed (micro-enterprises). In contrast, just 0.2 per cent of all enterprises had 250 or more persons employed and were therefore classified as large enterprises. In employment terms, one-half of people in employment worked in micro-enterprises or small enterprises (with fewer than 50 persons employed), and the other half worked in medium or large enterprises (with 50 or more persons employed). Moving to the other side of the Atlantic, according to the United States Department of State, some 19.6 million Americans work for companies employing fewer than 20 workers, 18.4 million work for firms employing between 20 and 99 workers, and 14.6 million work for firms with 100 to 499 workers; by contrast, 47.7 million Americans work for firms with 500 or more employees (Moffatt 2019). Likewise, in Australia, there were 2,051,085 actively trading businesses as of June 2009. Of these, around 96 per cent were small businesses (employing fewer than 20 workers), 4 per cent were medium-sized businesses (employing between 20 and 199 workers), and less than 1 per cent were large businesses (with 200 or more employees) (Australian Government 2011).

These data are not immediately comparable because the official definition of small enterprises, and therefore their statistical accounting, varies depending on the tradition and significance of smaller companies in the various socio-economic contexts. They are very impressive, however, as is often emphasised in the official comments from governments and their statistical offices; for example, in the Eurostat report cited above, small enterprises are called the backbone of the European economy, providing jobs and growth opportunities (Eurostat 2018). In the United States, too, they are defined as drivers of the (American) economy by the Small Business Administration Office of Advocacy, with a capacity for innovation and creativity capable of aiding the recovery from the great recession between mid-2009 and 2011 (Longley 2018). Of course, these comments and interpretations may be slightly sweetened in the wake of the optimistic views expressed by Ingham (1970) and the 1971 Bolton Report in the UK, which were to find an effective and visionary expression in Ernst Schumacher’s Small Is Beautiful (1973). On the other hand, as we shall see, there is no lack of far less positive, and even openly critical, assessments that conflict with them, especially on the part of scholars who have studied the reality of small enterprises from a work standpoint (Curran and Stanworth 1981; Rainnie 1989; Wilkinson 1999). The great significance of the world or sector of small enterprises is confirmed from both positions, however.

The purpose of this book is precisely to tackle the quantitatively significant and qualitatively diverse—and even contradictory—reality of small enterprises. But it aims to do so on the basis of an empirical verification of the facts above and beyond preconceived positions, and focusing on the crucial topic of work and the ways in which it is regulated—a topic always relevant but of especial interest in this case. However, it will achieve its aim by adopting a perspective that goes beyond focusing on the world or sector of small enterprises as such: a perspective in which an analysis of the dynamics observed within this reality becomes the starting point for a contribution to the debate on the future of labour in general.

As we shall see, the empirical reference is to Italy, a country that can be considered paradigmatic for the purposes of our analysis. The interest of the Italian case does not reside only in the quantitative importance of small firms in that country. It is also, and perhaps above all, due to the development in Italy of a system of employment relationships mediated collectively, and articulated on several levels, that can also affect small businesses. This makes it possible to reason on the topic of regulation of work on the basis of a wider range of options that could be observed in countries where the role of collective representation in small firms is extremely small or non-existent.

In the remainder of this introductory chapter, we will first present the general topic area and analytical framework within which the study is located. The state of the art will then be reviewed and assessed. In the part that follows, the approach adopted in the book is illustrated and discussed. A general presentation of the book’s structure completes the introduction.

The Growing Importance of Small Businesses

There are various ways of looking at small companies. It has frequently been done from an economic perspective at an aggregate level, to review the positive and negative contribution that they can make to the economic and/or employment-related development of a country—as we have already seen—or a local area. From this point of view, for example, one observer who takes up arguments from the US Small Business Administration offers an eloquent comment: One of the greatest strengths of the small business is its ability to respond to economic pressures and local community needs, and because many employers and owners of small businesses interact with their employees and are active members of their local communities, company policy is able to reflect something much closer to the local ethos than a major corporation that comes into a small town (Moffatt 2019). Or else, from an organisational standpoint at a company level, attempts have been made to shed light on the special features of management practices and to study the differences in the manner in which they organise labour compared with large companies. Another approach, from an employment relations perspective, has been to study the consequences arising out of the greater difficulties encountered in complying with laws, or applying pay and conditions that have been negotiated with trade unions, and ensuring trade union representation for the company’s workers (Curran and Stanworth 1981; Rainnie 1989; Wilkinson 1999). More generally, the implications of the extensive use of informal relations have been reviewed.

In all these cases, whether one takes into account the effects of small enterprises on the economy and employment at an aggregate level or studies their relations and organisational and employment conditions at workplaces, there is a tendency to review aspects of the realities of this productive world by taking it as a given at a particular moment.

It is also possible, however, to study the dynamics (of development, continuation and decline) that affect small companies. One might cite the important contribution made by David J. Storey’s Understanding the Small Business Sector (1994), which analyses the key issues that influence the growth and development of small businesses in general, from the time they are born as start-ups to their growth and sometimes their departure from the scene. For our purposes, however, the studies—even though they may be mostly indirect—that identify historical trends in the growth and decline of small enterprises that can be traced to the dynamics of the growth of capitalism are even more important.

One fundamental point of reference here is The Second Industrial Divide by Michael Piore and Charles Sabel (1984), in which the model of flexible specialisation as a possible alternative to the logic of Fordist production based on mass production technologies is theorised. According to the authors, the economies of the major industrial countries evolved along different trajectories and retained diverse legacies from their histories. What accounted for the differences was the ability of some countries—like Italy and Germany—to keep more of their traditional craft industries alongside mass production companies at the time of the first industrial divide in the nineteenth century, when mass production technologies emerged. It was in those cases in which a specialised craft type of production based on systems of small enterprises was able to survive that the bases for the development and practice of an alternative to the dominant mass production were created, at a time when mass production fell into a slump in the middle of the 1970s; this was flexible specialisation. Based on this interpretation, we might expect that in the second industrial divide, the productive logic of highly specialised small enterprises whose dynamism may compensate for the rigidities of the dominant model of Fordist production will be reaffirmed. In reality, as Suzanne Berger (2013a) recently observed, The world of flexible specialisation as Piore and Sabel envisaged it never came into existence, but what did emerge had strikingly similar underlying drivers. To be more precise, "Both the Second Divide’s vision of an economy based on flexible specialisation and the fragmented global production system that has actually emerged since the 1980s have in common a focus on the strengths to be gained from organising production in firms producing specific components or carrying out distinct functions required for transforming an idea into a product or service delivered to an ultimate end-user, rather than organising within vertically-integrated enterprises that carry out all or most activities within their own four walls". The MIT scholar, who has long experience with the ways in which productive methods have been transformed (Berger 2005, 2013b), defines the current situation as a fragmented global production system , or as new fragmented production networks, which are the outcome of a process of downsizing of large, vertically integrated corporations and the development of services.

For our purposes here, it is not necessary to enter the debate on the factors that enabled and stimulated the processes of corporate downsizing and international production fragmentation along the value chain from the 1980s of which Suzanne Berger writes. The most frequently cited of these factors include greater market integration and the reduction or elimination of barriers to the movement of goods and services; the arrival of new commercial and productive partners following changes in the political economy of new market economies (in Eastern Europe and East Asia) and increased competition in international markets; and the development of transport, communications and information technologies that have allowed the coordination of production processes separated by vast distances (Krugman 1995; Helg and Tajoli 2005; Hillberry 2011). Our interest is rather in taking note of the fact that the growing importance of small enterprises has indirectly been confirmed by this debate, alongside that of large and very large multinational companies, in the reorganisation of advanced economies over recent decades.

Nonetheless, we are certainly not trying to claim that the growing importance of small companies is a sign of homogeneous, and above all similarly dynamic, tendencies. Even though on the one hand, Suzanne Berger (2013a), quoting research results, notes that With the downsizing of the large corporation came a downsizing and a narrowing of corporate R & D investments. Increasingly, research and development take place in small firms—without deep pockets and without the financial capacity to pursue projects with long time horizons, it is also true that this only holds for a relatively small number of fast-growing, innovation-driven businesses. A brief report on this topic in the United States, based on data from the Census Bureau, is significantly entitled The 4 Types of Small Businesses, and Why Each One Matters (Mills 2015). The four types identified are: (i) Non-employee Businesses, corresponding to sole proprietorships (23 million); (ii) Main Street, i.e. local businesses serving consumers and other local businesses (4 million); (iii) Suppliers, i.e. suppliers to other businesses in the traded sector (1 million); and (iv) High-Growth , i.e. fast-growing, innovation-driven businesses (200,000).

The world of small enterprises is, therefore, a heterogeneous, complex reality that looks partly, so to speak, to the past, and partly to the future. Based on what we have observed, however, we can finally say that for some time now the considerable economic and social relevance of small firms has been a factor that does not refer to countries like Italy alone, that have always been characterised by an economy of small firms, but that involves most advanced countries. Rather than being indicative of backwardness, a vestige of the past that is bound to disappear, the emergence and spread of small businesses is at least in part one of the effects of the ongoing reorganisation of and changes to production systems, together with the development of services in the globalised economy.

This means that setting out to investigate how work is organised and reorganised and the ways in which it can be regulated within the broad, diversified array of small businesses is not a marginal, or even a slightly old-fashioned, task. Rather, it is an initiative that needs to be undertaken in order to fill a cognitive gap (and a creative delay) that has its origins in the enduring centrality of the regulatory model that was consolidated during the period dominated by a production model based on large mass production companies . The significance of this venture does not merely, or even principally, rely on considerations of the quantitative relevance of small-scale production today; even more important is the idea that an expedition such as this one into the world of small businesses, which are customarily formally less regulated than large companies and therefore potentially more open to being adapted to different circumstances, and on occasion to experiments with practices and norms other than the traditional ones, can reveal sometimes unexpected dynamics that serve to expand our vision of the future of work more generally. Accordingly, if we keep the process of development and consolidation of small enterprises in the wider economic situation in mind, we might expect that by investigating the dynamics that characterise the organisational and employment conditions under which they operate, we will be able to go beyond the limitations of this universe, and to cast our eyes over the entire work universe.

What We Know About Our Topic

The topic of this book—the organisation of work and employment relations in the small-business sector—stands at the intersection of three broad strands of research that have remained largely separate to date. The first is employment relations in small firms; the second is the development of industrial districts and of the social embeddedness of the economy more generally; and the third is the future of work and employment relations prospects in economies that are variously characterised by the internationalisation of markets, deregulation and the weakening of the traditional mechanisms of social protection for workers.

The first strand of this analysis, which has a long and rich tradition, especially in the UK and other countries (including the United States and Australia) where employment relations are characterised by the pre-eminence of market regulation and in-company bargaining, has focused mainly on the dynamics of how work and its use are regulated, intentionally or de facto, in firms where trade unions are largely absent. In the absence of regulatory methods that are collectively mediated by a trade union, therefore, the debate concerns the modalities of relations between employers and workers, in particular the conditions under which these relationships are not totally determined by the choices companies make.

Traditionally, the reference interpretative models have been the contrasting ones referred to previously: the small is beautiful model as a place of harmonious relations among the parties (Bolton 1971; Ingham 1970; Schumacher 1973) and the small company as a sweatshop or a place of prevarication and managerial autocracy (Rainnie 1989; Wilkinson 1999). As has been pointed out (Edwards 2012), this is not simply a case of opposing interpretations of how things work; the policy consequences that they can entail are conflicting as well. In the former case—in which it is believed that positive face-to-face relationships based on reciprocity prevail, working conditions vary in such a way that they can be adapted to individual needs, and protection and rights in the workplace are guaranteed almost naturally through processes of spontaneous adjustment —the informal nature of mutual obligations can be viewed as a functional equivalent of the formal rules in effect in large enterprises. In policy terms, therefore, it is a good thing to avoid the imposition of rules and boundaries that may prevent the positive informal meetings of conveniences. Conversely, in the latter case—where it is believed that relations based on excessive one-sided power and prevarication on the part of the entrepreneur prevail due to a limited size that hinders worker organisation—it will be appropriate in policy terms to introduce rules and controls from outside to guarantee workers the minimum socially indispensable protection levels.

Paul Edwards has noted, however, that business owners themselves are not completely at liberty. Owners and workers depend on each other, albeit asymmetrically. The prospect that they might be able to use work as they please tends to be conditional on a variety of circumstances, even in systems in which companies have fewer formal restrictions on their right to act, in particular as regards staff qualifications and the ease or difficulty with which they can replace workers in general (Goss 1991). This means that small companies, too, must ensure that they enjoy a certain level of consensus within the productive process. Studies in the UK on the conditions that should encourage unilateral decisions on the part of the company have actually revealed partially unexpected forms of a negotiated order (Ram 1994), albeit outside a representative body or collective agreements mediated by a trade union. Overall, while there is no doubt that small size will tend to structure relations among the parties in ways that are at least partly their own, what they may be in practical terms will vary greatly according to the specific characteristics of firms (in particular as regards the degree to which they depend on labour and their willingness to cooperate).

In fact, the world of small firms is highly diversified and not at all compact, and it is not a firm’s size in itself that constitutes the decisive feature of its employment relations. On looking at the factors that are considered to be significant, various types of small firm have been identified. Barrett and Rainnie (2002) have suggested a typology that distinguishes between small dependent firms (which complement and serve the interests of large firms, e.g., through sub-contracting), dominated firms (which compete with larger firms through intense exploitation of machinery and labour), isolated firms (which operate in specialised niches of demand or geographically discrete markets that are unattractive to large capital due to insufficient returns) and innovative firms (which operate in frequently innovative or developing markets, creating specialised and/or new products, and which are vulnerable to takeover or acquisition by large capital). Based on a firm’s capacity for growth , Van Osnabrugge and Robinson (2000) have distinguished between lifestyle firms (which are aimed at maintaining business owners and their families, and grow little or not at all), middle-market firms (firms with good growth prospects) and entrepreneurial firms (which enjoy significant growth) (Renda and Luchetta 2010, 19). Bottazzi (2010, 137) has proposed a subdivision into four types: marginal micro-firms and small firms (which operate exclusively in local markets and have low turnover and small earnings); satellite SMEs (which operate in networks of sub-suppliers and are frequently located close to large companies, for which they work to order); interstitial SMEs (which occupy niches within high-technology markets or final market segments, and whose strength is based on their capacity to innovate, imitate and adapt rapidly to new technologies); and specialised supplier and highly competitive SMEs (which operate independently of large companies, principally on international markets). For the purpose of our argument, however, it has to be underlined that in the debate the implications of such typologies on employment relations practices remain somewhat in the shadow.

Another important factor is the sector to which these small firms belong (Ram and Edwards 2010, 234). In their study of small firms in three sectors, Tsai et al. found that several key features of employment relations are sectorally specific more than they are related to size (Tsai et al. 2007, 1782–1783). In particular, they found that autonomy and work pressures were higher in the information and communication technology and the consulting and management sectors than in food manufacturing (Tsai et al. 2007, 1803). Even though a number of sectoral characteristics may entail elements that are linked to market conditions and skills, the influence of the sector on the employment relationship cannot be limited to this issue alone. Indeed, studies that have addressed the sector as an important influencing variable have looked not only at market conditions but also at other elements, such as industrial subcultures (Curran and Stanworth 1979). Defined by Turner as the distinctive meanings and institutions shared by those who work in a particular industry which concern work and the social relations of work (Turner 1971, cited in Curran and Stanworth 1979, 43), they were found to be significant in Curran and Stanworth’s analysis of workers’ orientation to work (Curran and Stanworth 1979).

Differences of a structural nature (in terms of market position, relationships with other firms, skill characteristics, capacity for growth and above all sector) tend to influence the various dimensions of labour relations. This is the case with pay levels, which are generally inferior to those of large companies, but also vary considerably across sectors , occupations and job positions (Goss 1988; Forth et al. 2006; Edwards and Ram 2006; Edwards et al. 2004, 2009; Bacon and Hoque 2005; Harris et al. 2004; Gilman and Edwards 2008; Wapshott and Mallett 2013; Ram 1999). It is also the case with recruitment and training methods, which are predominantly based on informal practices , although with significant variations that depend largely on the sector, as well as on competences and skills (Doherty and Norton 2014; Kitching and Blackburn 2002; Gilman and Edwards 2008). Sectoral variations have also been observed with regard to work organisation practices and intensity, which generally give workers in small firms greater autonomy and influence (Ram 1999, 2001; Wapshott and Mallett 2013; Tsai et al. 2007). The sector is once again the foundation for a number of explanations of the high level of satisfaction found among workers in small firms (Curran and Stanworth 1981)