The Size of Firms and Business Concentration

In modern industrial societies economies of scale assume great importance. Their existence may be traced to discussions amongst early economists, such as Adam Smith, of the division of labour. In essence the advantages derived from the division of labour, coupled with an increasing size of market, have made for the highly uneven size distribution of companies in the modern world. One such distribution is shown in Table 10.1, which relates to the world’s largest industrial corporations of the mid-1960s. Amongst the giant corporations with sales of over $250 million in 1965, the top five, or 1½ per cent of the total of almost five hundred companies, accounted for a sixth of their total sales. These companies were General Motors, Standard Oil of New Jersey, Ford Motor Company, Royal Dutch-Shell and Unilever. Amongst the five hundred giant corporations, motors and petroleum tend to dominate the overall sales position. Three-fifths of the large corporations had their headquarters in the United States, one-seventh in the countries of the European Economic Community, and one-ninth were domiciled in the United Kingdom. Of the remaining companies, only those domiciled in Japan, Canada and Switzerland formed any significant part of the total. The dominance of the United States amongst the world’s leading corporations is even more marked when the percentage of total sales is considered rather than the number of companies, whilst the importance of giant companies domiciled in the United Kingdom, Japan and Canada is somewhat diminished.