Derek J. Morris

Industrial economics : theory and evidence

This textbook for advanced students gives a comprehensive review of recent theoretical and empirical works, emphasizing the need to relate the two in a subject where they have often been separated.

Comment on the Paper by Professor Lindbeck

The slowdown of productivity growth in the industrialised western nations is now very well trodden ground. Some have focused on one or other particular explanation, and can point to the very sudden turndown around I973 as a rationale for this. At the other extreme there have been attempts, most notably by Denison, and generally via a growth-accounting framework, to identify comprehensively a vast range of possible factors with, as we know, still worrying residuals. Worse still, where they were large and positive they are now small or negative, raising doubts that they could have registered unquantified advances in knowledge and leaving the slowdown more of a puzzle than ever. The problem is not of course that economists cannot provide explanations for the slowdown. Quite the reverse is true in fact. There is a long list of candidates; but for numerous reasons it is proving very difficult to find agreement on the main culprits or to identify their contribution to the overall slowdown. These include problems of measurement-of outputs and inputs, of quality changes, of non-marketed items, etc. of unobservables the state of knowledge and technology, the attitudes of management and work-force of methodology in particular, queries about the growth-accounting framework and perhaps above all interrelations and multiple causalities between capital, labour and output, between real and financial variables, between supply and demand factors. Assar Lindbecks paper, which I much welcome as a further step towards unravelling this central problem, adopts a broad and ambitious target. It is partly, though not entirely, in the growth-accounting mould, and presents a reasonably exhaustive quantitative breakdown of the causes of the slowdown. At the risk of great injustice to the author, both in sweeping over many elements of the discussion surrounding the empirical estimates, and of pinning on him a precision which he would be the first to abjure, the relative magnitude of the effects which he estimates can be summarised as follows:

Financial Characteristics of Quoted and Unquoted Companies

This chapter sets out to explore systematic differences in financial characteristics between quoted and unquoted companies. In the process it attempts to identify the financial constraints which the two groups face, the efficiency with which they obtain finance and the implications for overall performance and policy.

The Contribution of the Unquoted Sector to the UK Economy

This chapter makes quantitative estimates of the share of the unquoted company in such national aggregates as gross national and domestic income, employment and gross domestic fixed capital formation. The availability of data has constrained us to make 1975 the benchmark year for the work. Wherever possible, the analysis has been compared with results obtained for other years, but the core of the work is centred on 1975.

Issues for Investigation

The vast majority of companies in the United Kingdom are unquoted. That is to say, their equity shares are not quoted in any Stock Exchange listing, and cannot therefore be traded in a Stock Exchange as are the shares of quoted companies. This difference could have far-reaching consequences for the ownership, management control, financing and development of unquoted companies, as well as potentially important implications for their efficiency. Yet very little is known about the behaviour and performance of these companies, or about their contribution to the UK economy as a whole. Surprisingly little has been written which specifically focuses on their functioning, and few comparisons with quoted companies exist. There is virtually no recent work.

A Review of Previous Research into the Unquoted Sector in the United Kingdom

The purpose of this chapter is to draw on some of the previous research on the unquoted sector in the United Kingdom to provide a background for the subsequent analysis of the book. There are two strands in this literature. The first concerns itself particularly with small firms. The most comprehensive work in this area was done by the Bolton Committee of Inquiry on Small Firms.1 While much of this literature is very interesting, it is important to reiterate at the outset that it is somewhat tangential to our main interests. It is certainly true that all small companies are likely to be unquoted, but not all unquoted companies are small. Since our focus is on the problems faced by all unquoted business, the small-firm literature is too restricted in scope. This is not merely an academic point. ‘Small firms’ are identified as a particular problem for policy, and a certain amount of legislative preference already exists (e.g. the lower rate of corporation tax on taxable profits less than a certain figure, or the exemption from VAT for small traders). The logic of applying these benefits to a rather ill-defined small-business sector only makes sense if it can be shown that the problems are related exclusively to size. This is far from being self-evident. The second strand of literature is of more interest to us. It basically aims to compare the performance, and business and legal environment of different kinds of firms.

The Behaviour of Unquoted Companies

The previous chapters attempted to identify the contribution to the United Kingdom economy of the unquoted sector as a whole. In contrast this chapter focuses on the behaviour of individual unquoted companies and tries to bring out at company level those issues which most influence their actions. As far as possible it goes behind published accounts to examine the specific factors which make for differences of performance as compared with quoted companies, and provides a basis for more detailed statistical comparisons in the next two chapters.

Comparisons of Performance and Objectives of Quoted and Unquoted Companies

In this chapter we set out the characteristics of unquoted companies in relation to their quoted counterparts and assess the relative performance of the two types of company.