The UK’s micro business population is booming. Defined as firms with 0-9 employees, there are now 5m such businesses in the UK, up from 3.5m in 2000. In contrast, the populations of all other firm sizes have either increased only marginally or fallen over the same period. The result is that micro businesses today account for 33 percent of private sector employment and 19 percent of total output. The RSA has described this trend as the ‘second age of small’, in reference to the fact that cottage industries were once the norm in pre-industrial Britain. But is this something we should laud or lament? While the enthusiasm for micro businesses is widespread – stretching throughout politics, media and popular culture – there is still a vocal minority who express disquiet over this economic trend. A key point made by the critics is that large micro business populations are characteristic features of poor countries, not rich ones. Indeed, the developmental economist Simon Kuznets long ago argued that small firms would diminish in number and be replaced by large ones as countries became more prosperous. So is the micro business phenomenon a sign that our economy is going backwards rather forwards? This report looks more closely at the evidence and concludes that Kuznets and his academic successors have been unfair in their unfavourable appraisal of small firms.

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